Question

Exercise 17-10 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) Product A Product B Number of units produced Direct labor cost ( $26 per DLH) Direct materials cost 11,500 units e.18 DLH per unit $ 2.40 per unit 1,700 units e.25 DUH per unit $ 2.50 per unit Activity Overhead costs $102,940 51,000 75,600 $229,540 Machine setup Materials handling Quality control inspections

Answer 1

Please give positive ratings so I can keep answering. It would help me a lot. Please comment if you have any query. Thanks!

Gitano Manufacturing
Calculation of overhead rate on the basis of direct labor hours:
Ans 1
	Product A	Product B	Total	Note
Units produced	11,500.00	1,700.00		A
Direct Labor hours per unit	0.18	0.25		B
Direct Labor hours	2,070.00	425.00	2,495.00	C=A*B
Overhead cost			229,540.00	D
Overhead rate per hour			92.00	E=D/C
	See C	See E	F=C*E	See A	G=F/A
Overhead Assigned	Activity Driver	Plant wide OH rate	Total Overhead cost	Units produced	OH cost per unit
Product A	2,070.00	92.00	190,440.00	11,500.00	16.56
Product B	425.00	92.00	39,100.00	1,700.00	23.00
Direct Labor cost per unit	Product A	Product B	Note
Direct Labor rate per hour	26.00	26.00	H
Direct Labor rate per unit	4.68	6.50	I=H*B
Product cost per unit	Product A	Product B	Note
Direct Materials	2.40	2.50
Direct Labor	4.68	6.50	See I
OH cost	16.56	23.00	See G
Product cost per unit	23.64	32.00	J
Ans 2	Product A	Product B	Note
Market Price	29.88	60.00	K
Product cost per unit	23.64	32.00	See J
Profit per unit	6.24	28.00	L=K-J
Ans 3	Product A	Product B	Note
Number of parts required per unit	12.00	3.00	M
Units produced	11,500.00	1,700.00	See A
Number of parts required	138,000.00	5,100.00	N=*M
		O	P	Q	R=P+Q	S=O/R
Calculation of activity based overhead rates			Cost Drivers used
Activity	Cost Driver	Overhead cost	Product A	Product B	Total	ABC Rates
Machine set up	Number of setups	102,940.00	11.00	18.00	29.00	3,549.66
Material Handling	Number of parts	51,000.00	138,000.00	5,100.00	143,100.00	0.36
Quality control inspection	Inspection hours	75,600.00	60.00	210.00	270.00	280.00
	Total Activity Cost	229,540.00
Allocation Table		T	See S	U=T*S
Overhead Assigned	Activity Driver		Activity rate	Total Overhead cost
Product A	Number of setups	11.00	3,549.66	39,046.21
	Number of parts	138,000.00	0.36	49,182.39
	Inspection hours	60.00	280.00	16,800.00
	Total Cost			105,028.60	X
	Units produced			11,500.00	See A
	Overhead Cost per unit			9.13	Y=X/A
		V	See S	W=V*S
Overhead Assigned	Activity Driver		Activity rate	Total Overhead cost
Product B	Number of setups	18.00	3,549.66	63,893.79
	Number of parts	5,100.00	0.36	1,817.61
	Inspection hours	210.00	280.00	58,800.00
	Total Cost			124,511.40	Z
	Units produced			1,700.00	See A
	Overhead Cost per unit			73.24	AA=Z/A
Product cost per unit	Product A	Product B	Note
Direct Materials	2.40	2.50
Direct Labor	4.68	6.50	See I
OH cost	9.13	73.24	See Y, AA
Product cost per unit	16.21	82.24	AB
	Product A	Product B
Market Price	29.88	60.00	See K
Product cost per unit	16.21	82.24	See AB
Profit per unit	13.67	(22.24)	AC= K-AB