Question

Exercise 17-10 Using ABC for strategic decisions LO P1, P3 Consider the following data for two products of Gitano Manufacturing (Loss amounts should be indicated with a minus sign. Round "OH rate and cost per unit" answers to 2 decimal places.) Product Products Number of units produced 10,000 units 2,000 units Direct labor cost (e $24 per ) 0.20 DLH per unit 0.25 DLH per unit Direct materials cost $ 2 per unit $ 3 per unit Activity Machine setup Materials handling Quality control inspections Overhead costs $121,000 48,000 80,000 $249,000 Required: 1. Using direct labor hours as the basis for assigning overhead costs, determine the total production cost per unit for each product line. Overhead Assigned Activity Driver Plantwide OH rate Total Overhead Cost Units Produced OH Cost per unit Product A Product B Product A Product B thene Dentale en and the marine Del Carmine the nee nee nerinnen

Answer 1

	Plantwide overhead rate = Total overheads/Total Direct Labor hours
1. Compute the manufacturing cost per unit using the plantwide overhead rate based on direct labor hours.
Overhead costs	249000	99.6	per DLH
Direct labor hours	(0.2*10,000+0.25*2000) = 2500
Overhead Assigned	Activity Driver	Plantwide OH rate	Total Overhead Cost	Units Produced	OH Cost per unit
Product A	2,000	99.6	1,99,200	10,000	19.92
Product B	500	99.6	49,800	2,000	24.9
	Product A	Product B
Direct Material	2	3
Direct Labor	4.8	6
Overhead	19.92	24.9
Cost per Unit	26.72	33.9
1.2 What is the gross profit per unit?
	Product A	Product B
Market price	20	60
Cost per Unit	26.72	33.9
Gross profit per unit	-6.72	26.1
3.1 Determine the manufacturing cost per unit of each product line using ABC.
Machine Setup	1,21,000	22	5500
Material Handling	48,000	16,000	3
QC	80,000	250	320
Overhead Assigned	Activity Driver	Activity rate	Total Overhead Cost
Product A
Machine Setup	10		5500		55,000
Material Handling	10,000		3		30,000
QC	40		320		12,800
	$97,800
Product B
Machine Setup	12		5500		66000
Material Handling	6000		3		18000
QC	210		320		67200
	$1,51,200
Total manufacturing costs	Product A	Product B
Direct Materials per unit	2	3
Direct Labor per unit	4.8	6
Overhead per unit	$9.78	$75.60
Total manufacturing cost per unit	16.58	84.6