Wess Company has limited capacity and can produce either its standard product or its deluxe product. Additional information follows.

 Wess Company has limited capacity and can produce either its standard product or its deluxe product. Additional information follows.
 

Per Unit    Standard    Deluxe
Selling price    $ 60    $ 90
Direct materials    30    35
Direct labor    20    25
   
1. Using a single plantwide rate, the company computes overhead cost per unit of $15 for the standard model and $20 for the deluxe model. Which model should the company produce? Hint: Compute product cost per unit and compare that with selling price to get gross profit per unit.

2. Using activity-based costing, the company computes overhead cost per unit of $5 for the standard model and $40 for the deluxe model. Which model should the company produce? Hint: Compute product cost per unit and compare that with selling price per unit to get gross profit per unit.

 

 

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