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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. Direct materials Direct labor hours Machine hours Batches Volume Engineering modifications Number of customers Market price Product A $15 per unit 0.5 DLH per unit 0.4 MH per unit 200 batches 16,000 units 14 modifications 700 customers $55 per unit Product B $30 per unit 1.5 DLH per unit 1.2 MH per unit 360 batches 3,600 units 86 modifications 600 customers $220 per unit The company's direct labor rate is $23 per direct labor hour (DLH). Additional information follows. Costs Indirect manufacturing Engineering support Electricity Setup costs Nonmanufacturing Customer service Driver $ 53,600 Engineering modifications 53,600 Machine hours 160,800 Batches 110,500 Number of customers Answer is complete but not entirely correct. 1. Compute the manufacturing cost per unit using the plantwide overhead rate based on direct labor hours. Overhead costs $ 268,000 $ 20.00 per direct labor hour Direct labor hours 13,400 Overhead Assigned Activity Driver Plantwide OH rate Total Overhead Cost Units Produced Product A 8,000 $ 20.00 $ 160,000 16,000 Product B 5,400 $ 20.00 $ 108,000 3,600 OH Cost per unit $ 10.00 $ 30.00 Product A 15.00 $ Total manufacturing cost per unit: Direct material cost per unit Direct labor cost per unit Overhead cost per unit Total manufacturing cost Product B 30.00 34.50 30.00 11.50 10.00 $ 36.50 $ 94.50 $ 753.00 1.2 What is the gross profit per unit? Product A Product B Market price 55.00 $ 220.00 Manufacturing cost per unit (36.50) (94.50) Gross profit per unit $ 18.50 $ 125.50 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 18.50 $ 125.50 Units purchased per customer 23 Gross profit per customer 425.50 2.2 What is the cost of providing customer service to each customer? Customer service costs $ 110,500 $ 85.00 per customer Number of customers 1,300 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 $ 425.50 $ 753.00 Customer service cost per customer 85.00 Profit (loss) per customer 340.50 668.00 Is the profit adequate? Yes Yes 85.00 $ $ 3.1 Determine the manufacturing cost per unit of each product line using ABC. Engineering Support Overhead costs $ 53,600 $ 536.00 per modification Number of modifications 100 Electricity Overhead costs 53,600 5.00 per machine hour Number of machine hours 10,720 $ Setup Overhead costs Number of batches 287.14 160,800 560 per batch Overhead Assigned Activity Driver Activity rate Total Overhead Cost Product A Engineering support Electricity 14 $ modifications machine hours batches 6,400 200 536.00 5.00 287.14 per modification per machine hour per batch 7,504 32,000 57,428 $ 96,932 16,000 6.06 86 modifications $ 536.00 $ 46,096 4,320 5.00 per modification per machine hour per batch machine hours batches 21,600 360 $ 287.14 Setup Total overhead costs assigned Total units produced Overhead cost per unit Product B Engineering support Electricity Setup Total overhead costs assigned Total units produced Overhead cost per unit Total manufacturing costs Direct Materials per unit Direct Labor per unit Overhead per unit Total manufacturing cost per unit $ 103,370 171,066 3,600 $ 47.52 Product A $ $ 15.00 Product B 30.00 34.50 11.50 6.06 47.52 $ 32.56 $ 112.02 3.2 What is the gross profit per unit? Product A Product B Market price $ 55.00 $ 220.00 Manufacturing cost per unit (31.06) (107.52) Gross profit(loss) per unit $ 23.94 $ 112.48 4.1 How much gross profit is generated by each customer of Product A and Product B using ABC? Product A Product B Gross profit(loss) per unit $ 23.94 112.48 Units purchased per customer 23 6% Gross profit (loss) per customer $ 550.62 $ 674.88 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 $ 478.80 $ 562.40 Customer service cost per customer 85.00 85.00 Profit (loss) per customer $ 393.80 $ 477.40 Is the profit adequate using ABC? 5. Which method of product costing gives better information to managers of this company? Method of product costing for better information Departmental overhead rate method Yes Yes 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. Direct materials Direct labor hours Machine hours Batches Volume Engineering modifications Number of customers Market price Product A $15 per unit 0.5 DLH per unit 0.4 MH per unit 200 batches 16,000 units 14 modifications 700 customers $55 per unit Product B $30 per unit 1.5 DLH per unit 1.2 MH per unit 360 batches 3,600 units 86 modifications 600 customers $220 per unit The company's direct labor rate is $23 per direct labor hour (DLH). Additional information follows. Costs Indirect manufacturing Engineering support Electricity Setup costs Nonmanufacturing Customer service Driver $ 53,600 Engineering modifications 53,600 Machine hours 160,800 Batches 110,500 Number of customers Answer is complete but not entirely correct. 1. Compute the manufacturing cost per unit using the plantwide overhead rate based on direct labor hours. Overhead costs $ 268,000 $ 20.00 per direct labor hour Direct labor hours 13,400 Overhead Assigned Activity Driver Plantwide OH rate Total Overhead Cost Units Produced Product A 8,000 $ 20.00 $ 160,000 16,000 Product B 5,400 $ 20.00 $ 108,000 3,600 OH Cost per unit $ 10.00 $ 30.00 Product A 15.00 $ Total manufacturing cost per unit: Direct material cost per unit Direct labor cost per unit Overhead cost per unit Total manufacturing cost Product B 30.00 34.50 30.00 11.50 10.00 $ 36.50 $ 94.50 $ 753.00 1.2 What is the gross profit per unit? Product A Product B Market price 55.00 $ 220.00 Manufacturing cost per unit (36.50) (94.50) Gross profit per unit $ 18.50 $ 125.50 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 18.50 $ 125.50 Units purchased per customer 23 Gross profit per customer 425.50 2.2 What is the cost of providing customer service to each customer? Customer service costs $ 110,500 $ 85.00 per customer Number of customers 1,300 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 $ 425.50 $ 753.00 Customer service cost per customer 85.00 Profit (loss) per customer 340.50 668.00 Is the profit adequate? Yes Yes 85.00 $ $ 3.1 Determine the manufacturing cost per unit of each product line using ABC. Engineering Support Overhead costs $ 53,600 $ 536.00 per modification Number of modifications 100 Electricity Overhead costs 53,600 5.00 per machine hour Number of machine hours 10,720 $ Setup Overhead costs Number of batches 287.14 160,800 560 per batch Overhead Assigned Activity Driver Activity rate Total Overhead Cost Product A Engineering support Electricity 14 $ modifications machine hours batches 6,400 200 536.00 5.00 287.14 per modification per machine hour per batch 7,504 32,000 57,428 $ 96,932 16,000 6.06 86 modifications $ 536.00 $ 46,096 4,320 5.00 per modification per machine hour per batch machine hours batches 21,600 360 $ 287.14 Setup Total overhead costs assigned Total units produced Overhead cost per unit Product B Engineering support Electricity Setup Total overhead costs assigned Total units produced Overhead cost per unit Total manufacturing costs Direct Materials per unit Direct Labor per unit Overhead per unit Total manufacturing cost per unit $ 103,370 171,066 3,600 $ 47.52 Product A $ $ 15.00 Product B 30.00 34.50 11.50 6.06 47.52 $ 32.56 $ 112.02 3.2 What is the gross profit per unit? Product A Product B Market price $ 55.00 $ 220.00 Manufacturing cost per unit (31.06) (107.52) Gross profit(loss) per unit $ 23.94 $ 112.48 4.1 How much gross profit is generated by each customer of Product A and Product B using ABC? Product A Product B Gross profit(loss) per unit $ 23.94 112.48 Units purchased per customer 23 6% Gross profit (loss) per customer $ 550.62 $ 674.88 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 $ 478.80 $ 562.40 Customer service cost per customer 85.00 85.00 Profit (loss) per customer $ 393.80 $ 477.40 Is the profit adequate using ABC? 5. Which method of product costing gives better information to managers of this company? Method of product costing for better information Departmental overhead rate method Yes Yes