Cilia Corporation Specializes in the Production of Door Knobs,which Are

Essay

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. )