The following data are for the two products produced by Shakti Company.
| Product A | Product B |
Direct materials | $15 per unit | $24 per unit |
Direct labor hours | 0.3 DLH per unit | 1.6 DLH per unit |
Machine hours | 0.1 MH per unit | 1.2 MH per unit |
Batches | 125 batches | 225 batches |
Volume | 10,000 units | 2,000 units |
Engineering modifications | 12 modifications | 58 modifications |
Number of customers | 500 customers | 400 customers |
Market price | $30 per unit | $120 per unit |
The company’s direct labor rate is $20 per direct labor hour (DLH). Additional information follows.
| Costs | Driver |
Indirect manufacturing |
|
|
Engineering support | $24,500 | Engineering modifications |
Electricity | 34,000 | Machine hours |
Setup costs | 52,500 | Batches |
Nonmanufacturing |
|
|
Customer service | 81,000 | Number of customers |
Required
1. Compute the manufacturing cost per unit using the plantwide overhead rate based on direct labor hours. What is the gross profit per unit?
2. How much gross profit is generated by each customer of Product A using the plantwide overhead rate? How much gross profit is generated by each customer of Product B using the plantwide overhead rate? What is the cost of providing customer service to each customer? What information is provided by this comparison?
3. Determine the manufacturing cost per unit of each product line using ABC. What is the gross profit per unit?
4. How much gross profit is generated by each customer of Product A using ABC? How much gross profit is generated by each customer of Product B using ABC? Is the gross profit per customer adequate?
5. Which method of product costing gives better information to managers of this company? Explain why.
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