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	$	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		110 batches			220 batches
Volume		10,000 units			2,000 units
Engineering modifications		8 modifications			40 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	$	22,000		Engineering modifications
Electricity		28,800		Machine hours
Setup costs		43,000		Batches
Nonmanufacturing
Customer service		75,000		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 per direct labor hour Direct labor hours 20 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? 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 Electricity Setup Overhead Assigned Activity Driver Activity rate Total Overhead Cost Product A Engineering support Electricity Setup Product B Engineering support Electricity Setup 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 (29.80) (82.90) 4.1 How much gross profit is generated by each customer of Product A and Product B using ABC? Product A Product B 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?

a. Departmental overhead rate method

b. Activity-based costing method

c. Plantwide overhead rate method

Answer 1