Question

Walnut Systems produces two different products, Product A, which sells for $128 per unit, and Product B, which sells for $208 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		Usage by Product A			Usage by Product B
Design (Engineering Hours)	$	161,396		213			301
Machining (Machine Hours)	$	578,200		1,040			3,090
Inspection (Batches)	$	24,705		39			22

Walnut manufactures 10,300 units of Product A and 6,700 units of Product B per month. Each unit of Product A uses $50 of direct materials and $17 of direct labor, while each unit of Product B uses $65 of direct materials and $32 of direct labor.

Required:

a. Calculate the activity rate for design.

b. Calculate the activity rate for machining.

c. Calculate the activity rate for inspection.

d. Determine the indirect costs assigned to Product A.

e. Determine the indirect costs assigned to Product B.

f. Determine the manufacturing cost per unit for Product A. (Round your answer to 2 decimal places.)

g. Determine the manufacturing cost per unit for Product B. (Round your answer to 2 decimal places.)

h. Determine the gross profit per unit for Product A. (Round your intermediate calculation to 2 decimal places. Round your answer to 2 decimal places.)

i. Determine the gross profit per unit for Product B. (Round your intermediate calculation to 2 decimal places. Round your answer to 2 decimal places.)

Answer 1

a)	Activity rate for Design =			Total Cost / Total Usage
			=	$ 161396 / (213 + 301)
			=	$ 314.00
b)	Activity rate for Machining =			Total Cost / Total Usage
			=	$ 578200 / (1040 + 3090)
			=	$ 140.00
c)	Activity rate for Inspection =			Total Cost / Total Usage
			=	$ 24705 / (39 + 22)
			=	$ 405.00

d)	Computation of indirect costs assigned to Product A
	Particulars			Amount
	Design	($ 314 x 213)		$   66,882.00
	Machining	($ 140 x 1040)		$ 145,600.00
	Inspection	($ 405 x 39)		$   15,795.00
				$ 228,277.00
e)	Computation of indirect costs assigned to Product B
	Particulars			Amount
	Design	($ 314 x 301)		$   94,514.00
	Machining	($ 140 x 3090)		$ 432,600.00
	Inspection	($ 405 x 22)		$     8,910.00
				$ 536,024.00

f)	Computation of manu. Cost per unit of Product A
	Particulars			Amount
	Direct Material			$   50.00
	Direct Labor			$   17.00
	Indirect Cost			$   22.16	($ 228277 / 10300)
				$   89.16
g)	Computation of manu. Cost per unit of Product B
	Particulars			Amount
	Direct Material			$   65.00
	Direct Labor			$   32.00
	Indirect Cost			$   80.00	($ 536024 / 6700)
				$ 177.00

h)	Computation of Gross Profit per unit for Product A
	Selling price per unit		$ 128.00
	Total cost per unit		$   89.16
	Gross Profit		$   38.84
i)	Computation of Gross Profit per unit for Product B
	Selling price per unit		$ 208.00
	Total cost per unit		$ 177.00
	Gross Profit		$   31.00