The new president of the Wernecke Company was stumped . Why had profits gone down ? He had directed the sales department to push the product with the highest contribution margin , and the sales department had come through with flying colors . The percent of flams sold had increased from 25 % of units sold to 37.5 % of units sold . So what happened ?
Required : 1 . Calculate the Wernecke Company ’ s estimated direct labor hours to produce flims and flams .
2 . Calculate the predetermined variable overhead rate that will be used in the coming year using a traditional costing system based upon direct labor hours .
3 . Using a traditional costing system based upon direct labor hours , compute the unit product costs for flims and flams as well as contribution margin per unit .
4 . It has been suggested to the president to consider the use of an ABC costing system to allocate manufacturing overhead . Engineering studies have revealed the following information about estimated manufacturing activities for the coming year .