Question

The following data are for the two products produced by Tadros Company.

	Product A			Product B
Direct materials	$	14 per unit		$	25 per unit
Direct labor hours		0.6 DLH per unit			1.5 DLH per unit
Machine hours		0.5 MH per unit			1.1 MH per unit
Batches		100 batches			200 batches
Volume		10,000 units			2,000 units
Engineering modifications		10 modifications			50 modifications
Number of customers		500 customers			400 customers
Market price	$	34 per unit		$	120 per unit

The company's direct labor rate is $20 per direct labor hour (DLH). Additional information follows.

	Costs			Driver
Indirect manufacturing
Engineering support	$	23,500		Engineering modifications
Electricity		36,000		Machine hours
Setup costs		40,000		Batches
Nonmanufacturing
Customer service		73,000		Number of customers

Required:

(Round your per unit cost answers to 2 decimal places and other answers to nearest whole number. Loss amounts should be indicated with minus sign.)

Answer 1

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Tadros Company
Total Manufacturing overhead	Amount $	Note
Engineering Support	23,500.00
Electricity cost	36,000.00
Setup costs	40,000.00
Total Manufacturing overhead	99,500.00	A

Answer 1
Calculation of Predetermined OH Rate	Product A	Product B	Total
Volume	10,000.00	2,000.00		B
Direct Labor Hour Per unit	0.50	1.50		C
Total Direct Labor Hours	5,000.00	3,000.00	8,000.00	D=B*C
Total Manufacturing overhead			99,500.00	See A
Predetermined OH Rate			12.44	F=A/D
Allocated OH per unit	6.22	18.66		G=F*C

Direct Labor cost per hour	20.00	20.00	H
Direct Labor cost per unit	10.00	30.00	I=H*C
Total manufacturing cost	Product A	Product B
Direct Materials	14.00	25.00
Direct Labor	10.00	30.00	See I
Allocated OH per unit	6.22	18.66	See G
Total manufacturing cost	30.22	73.66	J
Answer 1.2	Product A	Product B
Marker price	34.00	120.00	K
Manufacturing cost per unit	30.22	73.66	See J
Gross profit per unit	3.78	46.34	L=K-J
Answer 2.1
Units purchased per customer	Product A	Product B
Volume	10,000.00	2,000.00	See B
Number of customer	500.00	400.00	M
Units purchased per customer	20.00	5.00	N=B/M
Gross profit generated by each customer	Product A	Product B
Gross profit per unit	3.78	46.34	See L
Units purchased per customer	20.00	5.00	See N
Gross profit per customer	76.00	232.00	O=L*N

Answer 2.2
Customer service cost per customer	Product A	Product B	Total
Number of customer	500.00	400.00	900.00	P
Customer costs			73,000.00	Q
Customer service cost per customer			81.11	R=Q/P
	Product A	Product B
Gross profit per customer	76.00	232.00	See O
Customer service cost per customer	81.11	81.11	See R
Profit (loss) per customer	(5.11)	150.89	S=O-R
Profit is positive so profit is adequate.
Answer 3.1
Calculation of machine hours	Product A	Product B	Total
Volume	10,000.00	2,000.00		See B
Machine Hour Per unit	0.50	1.10		T
Total machine hours	5,000.00	2,200.00	7,200.00	U=B*T

Calculation of ABC rates for overhead		V	W	X	Y=W+X	Z=V/Y
			Activity usage
Activity cost pool	Activity Measure	Cost	Product A	Product B	Total	ABC rates
Engineering Support	Engineering modifications	23,500.00	10.00	50.00	60.00	391.67
Electricity cost	Machine Hours	36,000.00	5,000.00	2,200.00	7,200.00	5.00
Setup costs	Batches	40,000.00	100.00	200.00	300.00	133.33
Total Cost assigned		99,500.00

Allocation table
Product A		See Z	See W	AA=Z*W
Activity cost pool	Activity Measure	ABC Rates	Activity used	Cost assigned
Engineering Support	Engineering modifications	391.67	10.00	3,916.70
Electricity cost	Machine Hours	5.00	5,000.00	25,000.00
Setup costs	Batches	133.33	100.00	13,333.00
Total Cost assigned				42,249.70	AB
Units produced				10,000.00	See B
Costs per unit				4.22	AC=AB/B
Product B		See Z	See W	AA=Z*W
Activity cost pool	Activity Measure	ABC Rates	Activity used	Cost assigned
Engineering Support	Engineering modifications	391.67	50.00	19,583.50
Electricity cost	Machine Hours	5.00	2,200.00	11,000.00
Setup costs	Batches	133.33	200.00	26,666.00
Total Cost assigned				57,249.50	AB
Units produced				2,000.00	See B
Costs per unit				28.62	AC=AB/B

Total manufacturing cost	Product A	Product B
Direct Materials	14.00	25.00
Direct Labor	10.00	30.00	See I
Allocated OH per unit	4.22	28.62	See AC
Total manufacturing cost	28.22	83.62	AD
Answer 3.2	Product A	Product B
Marker price	34.00	120.00	K
Manufacturing cost per unit	28.22	83.62	See AD
Gross profit per unit	5.78	36.38	AE=K-D
Answer 4.1
Gross profit generated by each customer	Product A	Product B
Gross profit per unit	5.78	36.38	See AE
Units purchased per customer	20.00	5.00	See N
Gross profit per customer	116.00	182.00	AF=AE*N
Answer 4.2	Product A	Product B
Gross profit per customer	116.00	182.00	See AF
Customer service cost per customer	81.11	81.11	See R
Profit (loss) per customer	34.89	100.89	AG=AF-R
Profit is positive so profit is adequate.

Answer 5

ABC costing is better.