Problem 17-1A Comparing costs using ABC with the plantwide overhead rate The following data are for the two products produced by Tadros Company. Book Print Direct materials Direct labor hours Machine hours Batches Volume Engineering modifications Number of customers Market price Product A $15 per unit 0.4 DLH per unit 0.3 MH per unit 120 batches 1 10,000 units 10 modifications 500 customers $35 per unit Product B $24 per unit 1.5 DLH per unit 1.1 MH per unit 240 batches 2 , units 50 modifications 400 customers $95 per unit per unit erences The company's direct labor rate is $20 per direct labor hour (DLH). Additional information follows Costs Driver Indirect manufacturing Engineering support Electricity Setup costs Nonmanufacturing Customer service $24,000 Engineering modifications 26,000 Machine hours 43,000 Batches 74,000 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. per direct labor hour Overhead costs Direct labor hours Overhead Assigned OH Cost $ 93.000 $ 14.53 6,400 Activity Plantwide OH Driver rate 4,000 $ 14.53 2,400 14.53 Units Produced Total Overhead Cost IS 58,120 per unit Product A 10,000 $ 5.81 x Product B $ 34,872 2,000 $ 17.44 X Product A Product B $ 15.00 $ 24.00 Total manufacturing cost per unit: Direct material cost per unit Direct labor cost per unit Overhead cost per unit 4.00 X 15.00 5.81 17.44 Total manufacturing cost 24.81 56.44 1.2 What is the gross profit per unit? Product A Product B Market price $ 35.00 $ 95.00 Manufacturing cost per unit (24.81) (56.44) Gross profit per unit $ 10.19 38.56 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 10.19 $ 38.56 Units purchased per customer 20 5 Gross profit per customer $ 203.80 192.80 2.2 What is the cost of providing customer service to each customer? Customer service costs $ 74,000 $ 82.22 per customer CALELLA $ 82.22 Customer service costs Number of customers 8 $ 74,000 900 g per 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 $ 203.80 $ 192.80 Customer service cost per 82.22 82.22 customer Profit (loss) per customer S 121.58 XS 110.58 X Is the profit adequate? Yes Yes 3.1 Determine the manufacturing cost per unit of each product line using ABC. Engineering Support Overhead costs $ 24,000 $ 400.00 per modification Number of modifications Electricity 60 Overhead costs 26,000 S 5.00 per machine hour 5,200 Number of machine hours Setup $ 119.44 per setup Overhead costs Number of batches $ 43,000 360 Overhead Assigned Activity Driver Activity rate Total Overhead Cost 10 modifications $ 400.00 Product A Engineering support Electricity per modification $ 4,000 3,000 machine hours 5.00 15,000 > per machine hour per batch Setup 120 batches 119.44 14,333 $ 33,333 Total overhead costs assigned Total units produced Overhead cost per unit 10,000 $ 3.33 Product B 3.2 What is the gross profit per unit? Product A Product B Market price $ 35.00 s 95.00 Manufacturing cost per unit (26.33) (83.83) Gross profit(loss) per unit $ 8.67 $ 11.17 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 $ 8.67 $ 11.17 Units purchased per customer 20 5 Gross profit (loss) per $ 173.40 $ 55.85 customer 4.2 Is the gross profit adequate for each customer of Product A and B using ABC? Product A Product B $ 173.40 $ 55.85 Gross profit (loss) per customer Customer service cost per customer (82.22) (82.22) 5. Which method of product costing gives better information to managers of this company? Departmental overhead rate method Plantwide overhead rate method Activity-based costing method
