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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. Indirect manufacturing Engineering support Electricity Setup costs Nonmanufacturing Customer service Costs Driver $ 53,600 Engineering modifications 53,600 Machine hours 160,800 Batches 110,500 Number of customers 1. Compute the manufacturing cost per unit using the plantwide overhead rate based on direct labor hours. Overhead costs 268,000 $ 2.00 per direct labor hour Direct labor hours 134,000 Overhead Assigned Plantwide OH Activity Driver rate Total Overhead Cost Units Produced Product A 8,000 $ 2.00 $ 16,000 16,000 Product B 5,400 $ 2.00 $ 10,800 3,600 OH Cost per unit $ 1.00 $ 3.00 Product A 15.00 $ Total manufacturing cost per unit: Direct material cost per unit Direct labor cost per unit Overhead cost per unit Product B 30.00 34.50 11.50 1.00 3.00 Total manufacturing cost 27.50 $ 67.50 1.2 What is the gross profit per unit? Product A Product B Market price $ 55.00 220.00 Manufacturing cost per unit (27.50) (67.50) Gross profit per unit $ 27.50 X $ 152.50 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 27.50 $ 152.50 Units purchased per customer 23 6 Gross profit per customer $ 632.50 X 915.00 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 $ 632.50 $ 915.00 Customer service cost per customer 85.00 85.00 Profit (loss) per customer $ 547.50 $ 830.00 Is the profit adequate? Yes Yes 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 6.23 per machine hour Number of machine hours 8,600 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 $ $ $ 7,504 6,400 machine hours $ 536.00 per modification per machine 6.23 hour 287.14 per batch 39,872 % 200 batches $ 57,428 Setup Total overhead costs assigned Total units produced $ 104,804 16,000 Overhead cost per unit $ 6.55 X Product B Engineering support 86 modifications $ 536.00 $ 46,096 Electricity 4,320 machine hours $ 6.23 per modification per machine hour per batch 26,914 360 batches $ 287.14 $ 103,370 176,380 3,600 Setup Total overhead costs assigned Total units produced Overhead cost per unit Total manufacturing costs Direct Materials per unit Direct Labor per unit $ 48.99 X Product A 15.00$ $ Product B 30.00 34.50 X 11.50 X Overhead per unit 6.55 48.99 Total manufacturing cost per unit $ 33.05 $ 113.49 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 X 6 X Gross profit (loss) per customer $ 550.62 X $ 674.88 X 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? Yes Yes 5. Which method of product costing gives better information to managers of this company? Method of product costing for better information Plantwide overhead rate method