Comparing costs using ABC with the plant wide overhead rate LO P1, P3, A1, A2
The following data are for the two products produced by Tadros Company.
|
Product A |
|
Product B |
| Direct materials |
$ |
14 per unit |
|
$ |
25 per unit |
| Direct labor hours |
|
0.6 DLH per unit |
|
|
1.5 DLH per unit |
| Machine hours |
|
0.5 MH per unit |
|
|
1.1 MH per unit |
| Batches |
|
110 batches |
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|
220 batches |
| Volume |
|
10,000 units |
|
|
2,000 units |
| Engineering modifications |
|
8 modifications |
|
|
40 modifications |
| Number of customers |
|
500 customers |
|
|
400 customers |
| Market price |
$ |
35 per unit |
|
$ |
95 per unit per unit |
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The company’s direct labor rate is $20 per direct labor hour (DLH). Additional information follows.
|
Costs |
Driver |
| Indirect manufacturing |
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| Engineering support |
$ |
22,000 |
|
Engineering modifications |
| Electricity |
|
28,800 |
|
Machine hours |
| Setup costs |
|
43,000 |
|
Batches |
| Nonmanufacturing |
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|
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| Customer service |
|
75,000 |
|
Number of customers |
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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.)
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| 1. Compute the manufacturing cost per unit using the plant wide overhead rate based on direct labor hours. |
| Overhead costs |
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per direct labor hour |
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| Direct labor hours |
20 |
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| Overhead Assigned |
Activity Driver |
Plant wide OH rate |
Total Overhead Cost |
Units Produced |
OH Cost per unit |
| Product A |
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| Product B |
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Product A |
Product B |
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| 1.2 What is the gross profit per unit? |
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Product A |
Product B |
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| Market price |
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| Gross profit per unit |
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| 2.1 How much gross profit is generated by each customer of Product A and Product B using the plantwide overhead rate? |
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Product A |
Product B |
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| Gross profit per unit |
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| Units purchased per customer |
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| Gross profit per customer |
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| 2.2 What is the cost of providing customer service to each customer? |
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| Is the gross profit adequate for each customer of Product A and B using the plant wide overhead rate? |
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Product A |
Product B |
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| Gross profit per customer |
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| Customer service cost per customer |
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| Profit (loss) per customer |
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| Is the profit adequate? |
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| 3.1 Determine the manufacturing cost per unit of each product line using ABC. |
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| Engineering Support |
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| Electricity |
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| Setup |
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| Overhead Assigned |
Activity Driver |
Activity rate |
Total Overhead Cost |
| Product A |
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| Engineering support |
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| Electricity |
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| Setup |
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| Product B |
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| Engineering support |
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| Electricity |
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| Setup |
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| Total manufacturing costs |
Product A |
Product B |
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| Direct Materials per unit |
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| Direct Labor per unit |
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| Overhead per unit |
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| Total manufacturing cost per unit |
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| 3.2 What is the gross profit per unit? |
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Product A |
Product B |
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| Market price |
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(29.80) |
(82.90) |
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| 4.1 How much gross profit is generated by each customer of Product A and Product B using ABC? |
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Product A |
Product B |
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| Units purchased per customer |
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| Gross profit (loss) per customer |
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| 4.2 Is the gross profit adequate for each customer of Product A and B using ABC? |
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Product A |
Product B |
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| Gross profit (loss) per customer |
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| Customer service cost per customer |
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| Profit (loss) per customer |
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| Is the profit adequate using ABC? |
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5. Which method of product costing gives better information to managers of this company?
a. Departmental overhead rate method
b. Activity-based costing method
c. Plant wide overhead rate method
