Product A Product B Direct materials $ 14 per unit $ 24 per unit Direct labor…
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Question “Product A Product B Direct materials $ 14 per unit $ 24 per unit Direct labor…”
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.)
|
Answer
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 |
Conclusion
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