Erickson’s managers have decided to use the same indirect manufacturing costs per wheel rim that they computed in 2010

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Practice Problems

5. Refer to exercise 4. For 2011, Erickson’s managers have decided to use the same indirect manufacturing costs per wheel rim that they computed in 2010. In addition to the unit indirect manufacturing costs, the following data are budgeted for the company’s standard and deluxe models for 2011:

Because of limited machine-hour capacity, Erickson can produce either 2,000 standard rims or 2,000 deluxe rims.

Requirements

R1. If Erickson’s managers rely on the ABC unit cost data computed in 17-16, which model will they produce? Carry each cost to the nearest cent. (All nonmanufacturing costs are the same for both models.)

R2. If the managers rely on the single-allocation-base cost data, which model will they produce?

R3. Which course of action will yield more income for Erickson?

Hint

Accounting & FinanceInspite of numerous changes in the entrepreneurial environment throughout the past five decades, managerial costing practices currently employed by multiple companies have not changed over the same time. Cost information employed for the support of crucial managerial resolutions continues to derive basis from financial accounting figures failing to consider business operati...

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