Question

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 0.3 DLH per unit 0.2 MH per unit 115 batches 10,000 units 8 modifications 500 customers $35 per unit Product B $25 per unit 1.5 DLH per unit 1.1 MH per unit 230 batches 2,000 units 40 modifications 400 customers $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 Electricity Setup costs Nonmanufacturing Customer service $22,000 Engineering modifications 16,800 Machine hours 42,000 Batches 71,000 Number of customers

Labels for part 1

• Customer service costs
• Direct labor costs
• Direct labor hours
• Direct materials
• Inspection hours
• Number of batches
• Number of customers
• Number of machine hours
• Number of modifications
• Number of parts
• Number of setups
• Overhead costs

Answer 1

1.

	$
Engineering support	$22,000
Electricity cost	$16,800
Setup costs	$42,000
Total MOH (A)	$80,800

Cal of predetermined OH rate	Product A	Product B	Total
Volume	10,000	2,000	12,000
DLH per unit	0.3	1.5
Total DLH	3000	3000	6000
Total MOH			80,800
Predetermined OH rate			13.47
Allocated	40,410	40,410	80,820
Allocated cost per unit	4.041	20.205

Computation of cost per unit

	Product A	Product B
DM	15	25
DL	6(20*0.3)	30(20*1.5)
MOH	4.04	20.21
TC per unit	25.04	75.21

1.2 Computation of Gross profit per unit

	A	B
SP	35	95
PC	(25.04)	(75.21)
GP/unit	9.96	19.79

2.1 Computation of Gross profit per customer

	A	B
Volume	10,000	2000
Number of customers	500	400
Units purchased per customer	20(10,000/500)	5(2000/400)
GP/Customer	199.2(9.96*20)	98.95(19.79*5)

2.2 Computation of cost of providing customer service to each customer

	A	B	Total
Customer service cost			71000
No of customers	500	400	900
Cost of customer service to each customer			78.88

Checking adequacy of gross profit

	A	B
GP per customer	199.2	98.95
Cost of customer service to each customer	78.88	78.88
Profit/(Loss) per customer	120.32	20.07
Is profit adequate	YES	YES