Answer the Following Questions Using the Information Below:
Ghan Collectibles

question 71

Multiple Choice

Answer the following questions using the information below:
Ghan Collectibles produces T-shirts and sweatshirts.Product profitability is analysed as follows:
$\begin{array} { l r r } & \text { T-SHIRTS } & \text { SWEATSHIRTS } \\ \text { Production and sales volume } & 60000 \text { units } & 35000 \text { urits } \\ \text { Selling price } & \$ 16.00 & \$ 29.00 \\ \text { Direct material } & \$ 2.00 & \$ 5.00 \\ \text { Direct labour } & \$ 4.50 & \$ 7.20 \\ \text { Manufacturing overhead } & \$ 2.00 & \$ 3.00 \\ \text { Gross profit } & \$ 7.50 & \$ 13.80 \\ \text { Selling and administrative } & \$ 4.00 & \$ 7.00 \\ \text { Operating profit } & \$ 3.50 & \$ 6.80 \end{array}$

Ghan Collectibles's managers have decided to revise their current assignment of overhead costs to reflect the following $\mathrm { ABC }$ cost information:

$\begin{array}{c}\text { Activities demanded }\\\begin{array}{rr}\text { T-SHIRTS } & \text { SWEATSHIRTS } \\0.75 \mathrm{DLH} / \text { unit } & 1.2 \mathrm{DLH} / \mathrm{unit} \\45000 \mathrm{DLHs} & 42000 \mathrm{DLHs} \\60000 \text { inspections } & 17500 \text { inspections }\end{array}\end{array}$
-Using an ABC system,next year's estimates show manufacturing overhead costs will total $228 300 for 52 000 T-shirts.If all other T-shirt costs and sales prices remain the same,the profitability that can be expected is:

• A)($0.81)per T-shirt
• B)$4.39 per T-shirt
• C)$1.11 per T-shirt
• D)$5.41 per T-shirt

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Definitions:

Ordinary Maintenance

Routine upkeep and repair of equipment and facilities to keep them in their original condition without significantly enhancing their value or extending their life.

Book Value

The net asset value of a company calculated by total assets minus intangible assets (patents, goodwill) and liabilities.

Market Value

The existing rate at which an asset or service can be sold or acquired.

Revenue Expenditure

Expenses incurred during the normal course of business that are expected to be consumed within the current accounting period.