Question

	Product A			Product B
Direct materials	$	14 per unit		$	24 per unit
Direct labor hours		0.5 DLH per unit			1.5 DLH per unit
Machine hours		0.4 MH per unit			1.1 MH per unit
Batches		120 batches			240 batches
Volume		10,000 units			2,000 units
Engineering modifications		10 modifications			50 modifications
Number of customers		500 customers			400 customers
Market price	$	36 per unit		$	95 per unit per unit

The company's direct labor rate is $20 per direct labor hour (DLH). Additional information follows.

	Costs			Driver
Indirect manufacturing
Engineering support	$	23,500		Engineering modifications
Electricity		31,000		Machine hours
Setup costs		40,000		Batches
Nonmanufacturing
Customer service		74,000		Number of customers

(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.)

1. Compute the manufacturing cost per unit using the plantwide overhead rate based on direct labor hours. Overhead Assigned Activity Driver Plantwide OH rate Total Overhead Cost Units Produced OH Cost per unit Product A Product B Product A Product B 1.2 What is the gross profit per unit? Product A Product B Market price Gross profit per unit 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 Units purchased per customer Gross profit per customer 2.2 What is the cost of providing customer service to each customer? 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 Customer service cost per customer Profit (loss) per customer Is the profit adequate? 3.1 Determine the manufacturing cost per unit of each product line using ABC. Engineering Support Electricity

Answer 1

1. Compute the manufacturing cost per unit using the plantwide overhead rate based on direct labor hours.
Overhead costs	94500	11.8125	per DLH
Direct labor hours	(0.5*10,000+1.5*2000) = 8000
Overhead Assigned	Activity Driver	Plantwide OH rate	Total Overhead Cost	Units Produced	OH Cost per unit
Product A	5,000	11.8125	59,063	10,000	5.90625
Product B	3,000	11.8125	35,438	2,000	17.71875
		Product A	Product B
Direct Material		14	24
Direct Labor		10	30
Overhead		5.90625	17.71875
Cost per Unit		29.90625	71.71875
1.2 What is the gross profit per unit?
		Product A	Product B
Market price		36	95
Cost per Unit		29.90625	71.71875
Gross profit per unit		6.09375	23.28125
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		6.09375	23.28125
Units purchased per customer = Total units/Total customers		20	5
Gross profit per customer		121.875	116.40625
2.2 What is the cost of providing customer service to each customer?
		82.2222222
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		121.875	116.40625
Customer service cost per customer		82.2222222	82.2222222
Profit (loss) per customer		39.6527778	34.1840278
Is the profit adequate?		Yes	Yes
3.1 Determine the manufacturing cost per unit of each product line using ABC.
Engineering Support	23,500	60	391.666667
Electricity	31,000	6,200	5
Setup	40,000	360	111.111111
Overhead Assigned	Activity Driver		Activity rate		Total Overhead Cost
Product A
Engineering support	10		391.666667		3,917
Electricity	4,000		5		20,000
Setup	120		111.111111		13,333
					$37,250
Product B
Engineering support	50		391.666667		19583.3333
Electricity	2200		5		11000
Setup	240		111.111111		26666.6667
					$57,250
Total manufacturing costs		Product A	Product B
Direct Materials per unit		14	24
Direct Labor per unit		10	30
Overhead per unit		$3.73	$28.63
Total manufacturing cost per unit		27.725	82.625
3.2 What is the gross profit per unit?
		Product A	Product B
Market price		36	95
Cost per Unit		27.725	82.625
Gross Profit		8.275	12.375
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		8.275	12.375
Units purchased per customer		20	5
Gross profit (loss) per customer		165.5	61.875
		Product A	Product B
Gross profit per customer		165.5	61.875
Customer service cost per customer		82.22	82.22
Profit (loss) per customer		83.28	-20.345
Is the profit adequate?		Yes	No