Exercise 4-12 Using ABC for strategic decisions LO P1, P3

Exercise 04-12 Using ABC for strategic decisions LO P1, P3 Consider the following data for two products of Gitano Manufacturing (Loss amounts should be indicated with a minus sign. Round your intermediate calculations and "OH rate and cost per unit" answers to 2 decimal places.) Number of units produced Direct labor cost $28 per DLH) Direct materials cost Product 12,500 units 0.11 x per unit 5 1.30 per unit Products 1,600 units 0.24 OR per unit 5 2.50 per unit Activity Machine setup Materials handling Quality control inspections Overhead costs $ 20,318 57.000 34.510 $161,828 Required: 1. Using direct labor hours as the basis for assigning overhand costs, determine the total production cost per unit for each product line. Activity Driver Plantwide OH rate Total Overhead Cost Units Produced OH Cost per unit Overhead Assigned Product A Product B Product A Product B 2. If the market price for Product is $21.24 and the market prices for product is 562, determine the profit or loss por unit for each product Product Products Market price 3. Consider the following additional information about these two product lines. If ABC is used for assigning overhead costs to products, what is the cost per unit for Product A and for Product B2 Product A Product B Number of setups required for production 5 setups 16 setups Number of parts required 18 part/unit 5 part/unit Inspection hours required 58 hours 255 hours > Machine setup Materials handling Quality control Quality control Overhead Assigned Activity Driver Activity Rate Total Overhead Cost Product A Machine setup Materials handling Quality control $ 0 Product B Machine setup Materials handling Quality control Product Products Total manufacturing costs Direct Materials per unit Direct Labor per unit Overhead per unit Total manufacturing cost per unit 4. Determine the profit or loss per unit for each product assuming ABC costing. Product A Market price Product B 4.2 Based on your results in part 4, should the profit or loss per unit for each product influence company strategy? O No Yes

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