Question

Product B Product A Direct materials $14 per unit 0.5 DLH per unit 0.4 MH per unit $25 per unit 1.5 DLH per unit 1.1 MH per unit Direct labor hours Machine hours Batches 125 batches 250 batches 10,000 units 10 modifications 2,000 units Volume Engineering modifications Number of customers 50 modifications 500 customers 400 customers 95 per unit per 'unit Market price $35 per unit 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 $24,500 Engineering modifications 24,800 41,000 Machine hours Batches Customer service 73,000 Number of customers

Answer 1

1. Compute the manufacturing cost per unit using the plantwide overhead rate based on direct labor hours Overhead Costs $ 90,300 $ 11.29 Per Direct Labour hours Direct labour hours 8000 Overhead assigned Activity Driver Plantwide OH Rate Total Overhead Cost Units Produced OH Cost per Unit Product A 5000 11.29 56450 10000 5.65 Product B 3000 11.29 33870 2000 16.94 Product B Total manufacturing cost per unit: Direct material cost per unit Direct labor cost per unit Overhead cost per unit Total manufacturing Cost Product A 14.00 10.00 5.65 29.65 25.00 30.00 16.94 71.94 1.2 What is the gross profit per unit? Product B Market price Less:Manufacturing cost per unit Gross profit per Unit Product A 35.00 29.65 5.36 95.00 71.94 23.07 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 23.07 Units Purchased per customer 20 Gross profit per customer 107.10 115.33 5.36

2.2 What is the cost of providing customer service to each customer? Customer Service Costs $73000 $81.11 Per Customer Number of Customers 900 Product B Gross profit per customer Customer service cost per customer Profit (loss) per customer Is the profit adequate? Product A 107.10 -81.11 25.99 Yes 115.33 -81.11 34.22 Yes 3.1 Determine the manufacturing cost per unit of each product line using ABC. Overhead costs 24500 $408.33 Per Modification Number of modifications 60 Electricity Overhead costs Number of Machine Hours $4.00 Per Mahine Hour 24800 62001 Setup Overhead costs Number of Batches $109.33 Per batch 41000 375

Product A Overhead Assigned Engineering Support Electricity Setup 10 Activity Driver Activity rate 408.33 Per Modification 4000 4.00 Per Mahine Hour 125 109.33 Per batch Total overhead costs assigned Total units produced Overhead cost per unit Total Overhead Cost 4083.30 16000.00 13666.25 33749.55 10000 $3.37 Product B Overhead Assigned Engineering Support Electricity Setup Activity Driver Activity rate 50 408.33 Per Modification 2200 4.00 Per Mahine Hour 250 109.33 Per batch Total overhead costs assigned Total units produced Overhead cost per unit Total Overhead Cost 20416.50 8800.00 27332.50 56549.00 2000 $28.27 Product B Total manufacturing Cost per Unit: Direct material cost per unit Direct labor cost per unit Overhead cost per unit Total manufacturing Cost per Unit Product 14.00 10.00 3.37 $27.37 25.00 30.00 28.27 $83.27

3.2 What is the gross profit per unit? Product B Market price Less:Manufacturing cost per unit Gross profit per Unit Product A 35.00 27.37 $7.63 95.000 83.27 $11.73 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 per Unit 7.63 11.73 Units Purchased per custome 20 Gross profit per customer 152.60 58.65 4.2 is the gross profit adequate for each customer of Product A and B using ABC? 1 Product Product B Gross profit per customer 152.60 Customer service cost per customer -81.11 Profit (loss) per customer 71.49 Is the profit adequate? Yes 58.65 -81.11 -22.46 No 5. Which method of product costing gives better information to managers of this company? Activity based Costing Method