Question

Problem 17-1A Comparing costs using ABC with the plantwide overhead rate LO P1, P3, A1, A2

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

	Product A			Product B
Direct materials	$	13 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		120 batches			240 batches
Volume		10,000 units			2,000 units
Engineering modifications		9 modifications			45 modifications
Number of customers		500 customers			400 customers
Market price	$	35 per unit		$	95 per unit per unit

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

	Costs			Driver
Indirect manufacturing
Engineering support	$	27,000		Engineering modifications
Electricity		28,800		Machine hours
Setup costs		42,000		Batches
Nonmanufacturing
Customer service		74,000		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.)
. Compute the manufacturing cost per unit using the plantwide overhead rate based on direct labor hours.
Overhead costs       0      
Direct labor costs      
Overhead Assigned   Activity Driver   Plantwide OH rate   Total Overhead Cost   Units Produced   OH Cost per unit
Product A                 
Product B                 
    Product A   Product B  
           
       
         
         
1.2 What is the gross profit per unit?
Product A   Product B  
Market price              
             
Gross profit per unit              
2.1 How much gross profit is generated by each customer of Product A and Product B using the plantwide overhead rate?
Product A   Product B  
Gross profit per unit            
Units purchased per customer              
Gross profit per customer              
2.2 What is the cost of providing customer service to each customer?      
0      
Is the gross profit adequate for each customer of Product A and B using the plantwide overhead rate?
Product A   Product B  
Gross profit per customer              
Customer service cost per customer              
Profit (loss) per customer              
Is the profit adequate?              
3.1 Determine the manufacturing cost per unit of each product line using ABC.      
Engineering Support                  
0      
Electricity
0      
Setup
0      
Overhead Assigned   Activity Driver   Activity rate   Total Overhead Cost
Product A                  
Engineering support                  
Electricity                  
Setup                  
    $0
   
   
Product B                  
Engineering support                  
Electricity                  
Setup                  
    $0
   
   
Total manufacturing costs   Product A   Product B      
Direct Materials per unit          
Direct Labor per unit      
Overhead per unit        
Total manufacturing cost per unit        
3.2 What is the gross profit per unit?
Product A   Product B  
Market price              
    (28.85)   (84.65)      
               
4.1 How much gross profit is generated by each customer of Product A and Product B using ABC?
Product A   Product B  
0              
Units purchased per customer              
Gross profit (loss) per customer              
4.2 Is the gross profit adequate for each customer of Product A and B using ABC?
Product A   Product B  
Gross profit (loss) per customer              
Customer service cost per customer              
Profit (loss) per customer              
Is the profit adequate using ABC?              

5. Which method of product costing gives better information to managers of this company?

• Plantwide overhead rate method

• Activity-based costing method

• Departmental overhead rate method

just like this question but different numbers

https://www.chegg.com/homework-help/questions-and-answers/problem-17-1a-comparing-costs-using-abc-plantwide-overhead-rate-lo-p1-p3-a1-a2-following-d-q27218892

Answer 1

Requirement 1.1: Compute manufacturing overhead per unit using plant wide overhead rate as follows:

Total overhead costs = $97,800 ($27,000 + $28,800 + $42,000)

Total direct labor hours = 9,000 hours ((10,000 units × 0.6 DLH per unit) + 2,000 hours × 1.5 per DLH)

Plant wide overhead rate        = Total overhead costs ÷ Direct labor hours

                                                = $97,800 ÷ $9,000

                                                = $10.87 per DLH

Overhead cost per unit:

Particulars	Product A	Product B
Direct labor hours (activity driver)	6,000	3,000
× Plant wide overhead rate	$10.87	$10.87
Total overhead cost allocated	$65,200	$32,600
Number of units produced	10,000	2,000
Overhead cost per unit	$6.52	$16.30

Total manufacturing cost per unit:

Particulars	Product A	Product B
Direct materials	$13.00	$25.00
Direct labor cost (A: 0.6 × $20, B: 1.5 × $20	$12.00	$30.00
Overhead cost per unit	$6.52	$16.30
Total manufacturing cost per unit	$31.52	$71.30

Requirement 1.2: Compute gross profit per unit as follows

Particulars	Product A	Product B
Market price per unit	$35.00	$95.00
Deduct: Total manufacturing cost per unit	$31.52	$71.30
Gross profit per unit	$3.48	$23.70

Requirement 2.1: Compute gross profit generated by each customer

Particulars	Product A	Product B
Gross profit per unit	$3.48	$23.70
× Units purchased per customer (A:10,000 ÷ 500) (B: 2,000 ÷ 400)	20	5
Total gross profit per customer	$69.60	$118.50

Requirement 2.2: Compute cost of providing service to each customer

Customer service cost = Customer service costs ÷ Number of customers

= $74,000 ÷ 900 customers

= $82.22

Compute the profit or loss per customer as follows

Particulars	Product A	Product B
Gross profit per unit	$69.60	$118.50
Customer service cost ($74,000 ÷ 900 customers)	$82.22	$82.22
Profit (Loss) per customer	($12.62)	$36.28

The gross profit is not adequate for Product A and adequate for Product B.