Question

The following data are for the two products produced by Tadros Company. Product A Product B $ 14 per unit 0.4 DLH per unit 0.3 MH per unit 115 batches $ 26 per unit 1.5 DLH per unit 1.1 MH per unit 230 batches Direct materials Direct labor hours Machine hours Batches Volume Engineering modifications Number of customers 10,000 units 9 modifications 2,000 units 45 modifications 500 customers 400 customers Market price $ 35 per unit $ 95 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 $ 26,000 Engineering modifications 26,000 Machine hours 40,000 Batches Customer service 70,000 Number of customers

Answer 1

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Total manufacturing cost Direct Materials Direct Labor Allocated OH per unit Total manufacturing cost Product A 14.00 8.00 3.27 25.27 Product B 26.00 30.00 29.67 85.67 See See AC AD K Answer 3.2 Marker price Manufacturing cost per unit Gross profit per unit Product A 35.00 25.27 9.73 Product B 95.00 85.67 9.33 | See AD AE=K-D Answer 4.1 Gross profit generated by each custom Gross profit per unit Units purchased per customer Gross profit per customer Product B 9.33 Product 9.73 20.00 195.00 5.00 See AE See N AFFAE*N 47.00 Answer 4.2 Gross profit per customer Customer service cost per customer Profit (loss) per customer -Profit is adequate for A but not for B. Product A 195.00 77.78 117.22 Product B 47.00 77.78 (30.78) See AF See R AG=AF-R

Tadros Company
Total Manufacturing overhead	Amount $	Note
Engineering Support	26,000.00
Electricity cost	26,000.00
Setup costs	40,000.00
Total Manufacturing overhead	92,000.00	A

Answer 1
Calculation of Predetermined OH Rate	Product A	Product B	Total
Volume	10,000.00	2,000.00		B
Direct Labor Hour Per unit	0.40	1.50		C
Total Direct Labor Hours	4,000.00	3,000.00	7,000.00	D=B*C
Total Manufacturing overhead			92,000.00	See A
Predetermined OH Rate			13.14	F=A/D
Allocated OH per unit	5.26	19.71		G=F*C

Direct Labor per hour	20.00	20.00	H
Direct Labor cost per unit	8.00	30.00	I=H*C

Total manufacturing cost	Product A	Product B
Direct Materials	14.00	26.00
Direct Labor	8.00	30.00	See I
Allocated OH per unit	5.26	19.71	See G
Total manufacturing cost	27.26	75.71	J

Answer 1.2	Product A	Product B
Marker price	35.00	95.00	K
Manufacturing cost per unit	27.26	75.71	See J
Gross profit per unit	7.74	19.29	L=K-J

Answer 2.1
Units purchased per customer	Product A	Product B
Volume	10,000.00	2,000.00	See B
Number of customer	500.00	400.00	M
Units purchased per customer	20.00	5.00	N=B/M

Gross profit generated by each customer	Product A	Product B
Gross profit per unit	7.74	19.29	See L
Units purchased per customer	20.00	5.00	See N
Gross profit per customer	155.00	96.00	O=L*N

Answer 2.2
Customer service cost per customer	Product A	Product B	Total
Number of customer	500.00	400.00	900.00	P
Customer costs			70,000.00	Q
Customer service cost per customer			77.78	R=Q/P

	Product A	Product B
Gross profit per customer	155.00	96.00	See O
Customer service cost per customer	77.78	77.78	See R
Profit (loss) per customer	77.22	18.22	S=O-R

Profit is positive so profit is adequate.

Answer 3.1
Calculation of machine hours	Product A	Product B	Total
Volume	10,000.00	2,000.00		See B
Machine Hour Per unit	0.30	1.10		T
Total machine hours	3,000.00	2,200.00	5,200.00	U=B*T

Calculation of ABC rates for overhead		V	W	X	Y=W+X	Z=V/Y
			Activity usage
Activity cost pool	Activity Measure	Cost	Product A	Product B	Total	ABC rates
Engineering Support	Engineering modifications	26,000.00	9.00	45.00	54.00	481.48
Electricity cost	Machine Hours	26,000.00	3,000.00	2,200.00	5,200.00	5.00
Setup costs	Batches	40,000.00	115.00	230.00	345.00	115.94
Total Cost assigned		92,000.00

Allocation table
Product A		See Z	See W	AA=Z*W
Activity cost pool	Activity Measure	ABC Rates	Activity used	Cost assigned
Engineering Support	Engineering modifications	481.48	9.00	4,333.32
Electricity cost	Machine Hours	5.00	3,000.00	15,000.00
Setup costs	Batches	115.94	115.00	13,333.10
Total Cost assigned				32,666.42	AB
Units produced				10,000.00	See B
Costs per unit				3.27	AC=AB/B

Product B		See Z	See W	AA=Z*W
Activity cost pool	Activity Measure	ABC Rates	Activity used	Cost assigned
Engineering Support	Engineering modifications	481.48	45.00	21,666.60
Electricity cost	Machine Hours	5.00	2,200.00	11,000.00
Setup costs	Batches	115.94	230.00	26,666.20
Total Cost assigned				59,332.80	AB
Units produced				2,000.00	See B
Costs per unit				29.67	AC=AB/B