Question

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Problem 17-1A Comparing costs using ABC with the plantwide overhead rate LO P1, P3, A1, A2 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 0.5 DLH per unit 0.4 MH per unit 200 batches 16,000 units 14 modifications 700 customers $55 per unit Product B $30 per unit 1.5 DLH per unit 1.2 MH per unit 360 batches 3,600 units 86 modifications 600 customers $220 per unit The company's direct labor rate is $23 per direct labor hour (DLH). Additional information follows. Indirect manufacturing Engineering support Electricity Setup costs Nonmanufacturing Customer service Costs Driver $ 53,600 Engineering modifications 53,600 Machine hours 160,800 Batches 110,500 Number of customers

Answer 1

Answer-1:
Total Manufacturing overhead	Amount $
Engineering Support	53,600
Electricity cost	53,600
Setup costs	160,800
Total Manufacturing overhead	268,000
Calculation of Predetermined OH Rate:
	Product A	Product B	Total
Volume	16,000	3,600
Direct Labor Hour Per unit	0.50	1.5
Total Direct Labor Hours	8,000	5,400	13,400
Total Manufacturing overhead			$              268,000
Predetermined OH Rate			$                  20.00
Overhead assigned	Activity driver	Plant wide OH rate	Total overhead cost	Units produced	OH cost per unit
Product A	8,000	$             20.00	$            160,000	16,000	$   10.00
Product B	5,400	$             20.00	$            108,000	3,600	$   30.00

Answer-1.2:
Total manufacturing cost per unit:	Product A	Product B
Direct material cost per unit	$            15.00	$             30.00
Direct labor cost per unit	$            11.50	$             34.50
Overhead cost per unit	$            10.00	$             30.00
Total manufacturing cost	$            36.50	$             94.50
	Product A	Product B
Market price	$            55.00	$          220.00
Manufacturing cost per unit	$            36.50	$             94.50
Gross profit per unit	$            18.50	$          125.50

Answer-2.1:
	Product A	Product B
Gross profit per unit	$            18.50	$          125.50
Units purchased per customer	23.00	6.00
Gross profit per customer	$          425.50	$          753.00

Answer-2.2:
Customer service cost	$        110,500
Number of customer	1,300
Customer service cost per customer	$            85.00
	Product A	Product B
Gross profit per customer	$          425.50	$          753.00
Customer service cost per customer	$            85.00	$             85.00
Profit (loss) per customer	$          340.50	$          668.00
Is the profit adequate?	Yes	Yes

Answer-3.1:
Electricity
Overhead cost	$          53,600
Number of machine hours	10,720	(16,000*0.4) + (3,600*1.2)
Electricity cost per machine hour	$              5.00