Question

Correct all answers in red. Please complete entire answer! Ignore the answers with red you think are correct!
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. Costs Driver Indirect manufacturing Engineering support Electricity Setup costs Nonmanufacturing Customer service $ 53,600 Engineering modifications 53,600 Machine hours 160,800 Batches 110,500 Number of customers Required: (Round your per unit cost answers to 2 decimal places and other answers to nearest whole number. Loss amounts should be indicated with minus sign.)

Answer 1

Plantwide overhead rate = Total overheads/Total Direct Labor hours

1. Compute the manufacturing cost per unit using the plantwide overhead rate based on direct labor hours.
Overhead costs	268000	20	per DLH
Direct labor hours	13400
Overhead Assigned	Activity Driver	Plantwide OH rate	Total Overhead Cost	Units Produced	OH Cost per unit
Product A	8,000	20	160,000	16,000	10
Product B	5,400	20	108,000	3,600	30
		Product A	Product B
Direct Material		15	30
Direct Labor		11.5	34.5
Overhead		10	30
Cost per Unit		36.5	94.5
1.2 What is the gross profit per unit?
		Product A	Product B
Market price		55	220
Cost per Unit		36.5	94.5
Gross profit per unit		18.50	125.50
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		18.5	125.5
Units purchased per customer = Total units/Total customers		22.86	6
Gross profit per customer		422.91	753
2.2 What is the cost of providing customer service to each customer?
		85
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		422.91	753
Customer service cost per customer		85	85
Profit (loss) per customer		337.91	668
Is the profit adequate?		Yes	Yes
3.1 Determine the manufacturing cost per unit of each product line using ABC.
Engineering Support	53,600	100	536
Electricity	53,600	10,720	5
Setup	160,800	560	287.142857
Overhead Assigned	Activity Driver		Activity rate		Total Overhead Cost
Product A
Engineering support	14		536		7,504
Electricity	6,400		5		32,000
Setup	200		287.142857		57,429
					$96,933
Product B
Engineering support	86		536		46096
Electricity	4320		5		21600
Setup	360		287.142857		103371.429
					$171,067
Total manufacturing costs		Product A	Product B
Direct Materials per unit		15	30
Direct Labor per unit		11.5	34.5
Overhead per unit		$6.06	$47.52
Total manufacturing cost per unit		32.5582857	112.01873
3.2 What is the gross profit per unit?
		Product A	Product B
Market price		55	220
Cost per Unit		32.56	112.02
Gross Profit		22.44	107.98
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		22.44	107.98
Units purchased per customer		22.8571429	6
Gross profit (loss) per customer		512.914286	647.88
		Product A	Product B
Gross profit per customer		512.914286	647.88
Customer service cost per customer		85	85
Profit (loss) per customer		427.914286	562.88
Is the profit adequate?		Yes	Yes
ABC produces better information

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