Question
Walnut Systems produces two different products, Product A, which sells for $120 per unit, and Product B, which sells for $180 per unit, using three
Walnut Systems produces two different products, Product A, which sells for $120 per unit, and Product B, which sells for $180 per unit, using three different activities: Design, which uses Engineering Hours as an activity driver; Machining, which uses machine hours as an activity driver; and Inspection, which uses number of batches as an activity driver. The cost of each activity and usage of the activity drivers are as follows:
Cost | Usuage by Product A | Usuage by Product B | |
design (engineering hrs) | 150,000 | 200 | 300 |
Machining (Machine hr) | 500,000 | 1,000 | 3,000 |
Inspection (Batches) | 30,000 | 45 | 15 |
Walnut manufactures 10,000 units of Product A and 7,500 units of Product B per month. Each unit of Product A uses $50 of direct materials and $20 of direct labor, while each unit of Product B uses $75 of direct materials and $35 of direct labor. What is the total manufacturing cost per unit for product B? What is the gross profit for product B? If the company used traditional volume based costing (plant wide rate) allocated on Machine hours, what would be the calculated cost per unit of product B?
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