Question

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

	Product A		Product B
Direct materials	$	14 per unit	$	26 per unit
Direct labor hours		0.5 DLH per unit		1.5 DLH per unit
Machine hours		0.4 MH per unit		1.1 MH per unit
Batches		100 batches		200 batches
Volume		10,000 units		2,000 units
Engineering modifications		9 modifications		45 modifications
Number of customers		500 customers		400 customers
Market price	$	34 per unit	$	95 per unit

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

	Costs				Driver
Indirect manufacturing
Engineering support		$	26,500		Engineering modifications
Electricity			24,800		Machine hours
Setup costs			42,000		Batches
Nonmanufacturing
Customer service			72,000		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.) 1. Compute the manufacturing cost per unit using the plantwide overhead rate based on direct labor hours. Overhead costs $93,300 $11.66 per direct labor hour Direct labor hours 8,000 Overhead Assigned Activity Driver Plantwide OH rate Total Overhead Cost Units Produced OH Cost per unit Product A 5,000 $11.66 $58,300 10,000 $5.83 Product B 3,000 $11.66 $34,980 2,000 $17.49 Total manufacturing cost per unit: Product A Product B Direct material cost per unit $14.00 $26.00 Direct labor cost per unit 0.50 1.50 Overhead cost per unit 5.83 17.49 Total manufacturing cost $20.33 $44.99 1.2 What is the gross profit per unit? Product A Product B Market price $34.00 $95.00 Manufacturing cost per unit (20.33) (44.99) Gross profit per unit $13.67 $50.01 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 $13.67 $50.01 Units purchased per customer 20 5 Gross profit per customer $273.40 $250.05 2.2 What is the cost of providing customer service to each customer? Customer service costs $72,000 $80.00 per customer Number of customers 900 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 $273.40 $250.05 Customer service cost per customer 80.00 80.00 Profit (loss) per customer $193.40 $170.05 Is the profit adequate? Yes Yes 3.1 Determine the manufacturing cost per unit of each product line using ABC. Engineering Support Inspection hours $26,500 $490.74 Number of modifications 54 Electricity Overhead costs $24,800 $4.00 Number of machine hours 6,200 Setup Overhead costs $42,000 $140.00 Number of batches 300 Overhead Assigned Activity Driver Activity rate Total Overhead Cost Product A Engineering support 9 modifications $490.74 per modification $4,417 Electricity 4,000 machine hours $4.00 per machine hour 16,000 Setup $140.00 per batch $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 (27.44) (85.44) 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?

Answer 1

1. Compute the manufacturing cost per unit using the plantwide overhead rate based on direct labor hours.
Overhead costs	$93,300	$11.66	per direct labor hour
Direct labor hours	8,000
Overhead Assigned	Activity Driver	Plantwide OH rate	Total Overhead Cost	Units Produced	OH Cost per unit
Product A	5,000	$11.66	$58,300	10,000	$5.83
Product B	3,000	$11.66	$34,980	2,000	$17.49
Total manufacturing cost per unit:		Product A	Product B
Direct material cost per unit		$14.00	$26.00
Direct labor cost per unit(Direct labour hour*per hour rate)		10	30	10=.5*20, 30=1.5*20
Overhead cost per unit		5.83	17.49
Total manufacturing cost		$29.83	$73.49
1.2 What is the gross profit per unit?
		Product A	Product B
Market price		$34.00	$95.00
Manufacturing cost per unit		($29.83)	($73.49)
Gross profit per unit		$4.17	$21.51
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		$4.17	$21.51
Units purchased per customer		20	5
Gross profit per customer		$83.40	$107.55
2.2 What is the cost of providing customer service to each customer?
Customer service costs	$72,000	$80.00	per customer
Number of customers	900
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		$83.40	$107.55
Customer service cost per customer		80	80
Profit (loss) per customer		$3.40	$27.55
Is the profit adequate?		Yes	Yes
3.1 Determine the manufacturing cost per unit of each product line using ABC.
Engineering Support
Inspection hours	$26,500	$490.74
Number of modifications	54
Electricity
Overhead costs	$24,800	$4.00
Number of machine hours	6,200
Setup
Overhead costs	$42,000	$140.00
Number of batches	300
Overhead Assigned	Activity Driver		Activity rate		Total Overhead Cost
Product A
Engineering support	9	modifications	$490.74	per modification	$4,417
Electricity	4,000	machine hours	$4.00	per machine hour	16,000
Setup	100	Batches	$140.00	per batch	$14,000
Total Overhead for A					$34,417
No. of units					10000
Overhead per unit					$3.44
Product B
Engineering support	45	modifications	$490.74	per modification	$22,083
Electricity	2,200	machine hours	$4.00	per machine hour	8,800
Setup	200	Batches	$140.00	per batch	$28,000
Total Overhead for B					$58,883
No. of units					2000
Overhead per unit					$29.44
Total manufacturing costs		Product A	Product B
Direct Materials per unit		$14.00	$26.00
Direct Labor per unit		$10.00	$30.00
Overhead per unit		$3.44	$29.44
Total manufacturing cost per unit		$27.44	$85.44
3.2 What is the gross profit per unit?
		Product A	Product B
Market price		$34.00	$95.00
		-27.44	-85.44
		$6.56	$9.56
4.1 How much gross profit is generated by each customer of Product A and Product B using ABC?
		Product A	Product B
0		$6.56	$9.56
Units purchased per customer		20	5
Gross profit (loss) per customer		$131.20	$47.80
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		$131.20	$47.80
Customer service cost per customer		80	80
Profit (loss) per customer		$51.20	($32.20)
Is the profit adequate using ABC?		Yes	No