Reference no: EM132540676

Question - Cilia Corporation specializes in the production of door knobs, which are mostly sold within its territory. The selling price for each door knob is $15. Using the traditional allocation method to allocate manufacturing overhead, the full-product cost is determined to be $10. The company recently introduced the activity-based costing method to allocate its overhead. The refinement of costs shows that the full-product cost is $2.50 lower with activity-based costing than with traditional costing.

Requirement -

1. Calculate the change in net profit percentage as a result of the introduction of activity-based costing.

2. The desired net profit margin of the company is 60%. If the production costs cannot be reduced, by how much should the selling price be increased in order to achieve the desired profit? (Use the cost estimates under activity-based costing.)