Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 60

Product Selection Strategy Johans Computer Company has two product lines, Desktop and Tablet. The firm’s costing system shows that each Desktop costs $550 to manufacture. Johans sells 9,000 Desktops at $660 per unit. A national low-price store has introduced a similar desktop computer with a market price of $380. Tablet computer is a new model that a handful of companies, including Johans, introduced recently. Each Tablet computer costs Johans $750 to produce and sells for $2,750. Johans sells approximately 150 Tablet computers. The marketing vice president suggests shifting the sales mix in favor of Tablet computer. Unfortunately, Tablet computer is more complicated to make and few are produced.

Required Should Johans focus its sales on the Desktop or Tablet computer? Explain your answer.

Step 1 of 2

Activity based costing method which is commonly known as ABC method, is a costing method where indirect cost is assigned to product on the basis of activities identified, used in producing the product.