The following data are for the two products produced by Tadros Company. Direct materials Direct labor…
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Question “The following data are for the two products produced by Tadros Company. Direct materials Direct labor…”
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 $20 per unit 0.5 DLH per unit 0.4 MH per unit 200 batches 16,000 units 14 modifications 500 customers $50 per unit Product B $30 per unit 1.5 DLH per unit 1.2 MH per unit 360 batches 3,600 units 86 modifications 400 customers $200 per unit The company’s direct labor rate is $32 per direct labor hour (DLH). Additional information follows. Indirect manufacturing Engineering support Electricity Setup costs Nonmanufacturing Customer service Costs Driver $ 53,600 Engineering modifications 42,880 Machine hours 171,520 Batches 81,000 Number of customers Required: (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.)
1. Compute the manufacturing cost per unit using the plantwide overhead rate based on direct labor hours. Overhead costs Direct labor hours Activity Driver Plantwide OH rate Total Overhead Cost Units Produced OH Cost per unit Overhead Assigned Product A Product B Product A Product B 1.2 What is the gross profit per unit? Product A Product B Market price Gross profit per unit
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 Units purchased per customer Gross profit per customer 2.2 What is the cost of providing customer service to each customer? 0 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 Customer service cost per customer Profit (loss) per customer Is the profit adequate? 3.1 Determine the manufacturing cost per unit of each product line using ABC.
3.1 Determine the manufacturing cost per unit of each product line using ABC. Engineering Support 0 Electricity 0 Setup 0 Activity Driver Activity rate Total Overhead Cost Overhead Assigned Product A Engineering support Electricity Setup $ 0 Product B Engineering support Electricity Setup $ 0
Product A Product B Total manufacturing costs Direct Materials per unit Direct Labor per unit Overhead per unit Total manufacturing cost per unit 3.2 What is the gross profit per unit? Product A Product B Market price (35.90) (108.23) 4.1 How much gross profit is generated by each customer of Product A and Product B using ABC? Product A Product B Units purchased per customer Gross profit (loss) per customer 4.2 Is the gross profit adequate for each customer of Product A and B using ABC? Product A Product B Gross profit (loss) per customer Customer service cost per customer Profit (loss) per customer Is the profit adequate using ABC?
5. Which method of product costing gives better information to managers of this company? Method of product costing for better information
Answer
1) Hours of direct labor for product A = 16,000 units*0.5 DLH/unit = 8,000 hrs
Calculation of manufacturing cost per unit using the
plantwide overhead rate based on direct labor hours.
Overhead Costs (A)
$268,000
(A/B) $20
per direct labor hour
Direct Labor Hours (B)
13,400hrs
Overhead Assigned
Activity Driver (C).
Plantwide OH rate (D)
Total Overhead Cost (E = C*D)
Units Produced
OH Cost per unit (E/F)
Product A
8,000
$20
$160,000
16,000
$10
Product B
5,400
$20
$108,000
3,600
$30
Total manufacturing cost per unit
Product A
Product B
Direct Material cost per unit
$20
$30
Direct Labor cost per unit
(0.50*$32) = $16
(1.50*$32) = $48
Overhead cost per unit
$10
$30
Total manufacturing cost per unit
$46
$108
1.2)
1.2 Calculation per unit of gross profit
Product A
Product B
Market price
$52
$200
Manufacturing cost per unit
($46)
($108)
Gross profit per unit
$6
$92
2.1)
Calculation of gross profits generated by each customer for Product A and ProductB using the plantwide overhead rates
Product A
Product B
Gross profit per unit (A)
$6
$92
Units per customer (B).
(16,000/500) = 32
(3,600/400) = 9
Gross profit per customer (A*B)
$192
$828
2.2)
Calculation of the cost to provide customer service to each client
2.2
Customer service costs (c).
$81,000
(c/d) $90
per customer
No. No.
900
Is Product A and B producing a sufficient gross profit for each customer?
Product A
Product B
Gross profit per customer
$192
$828
Customer service cost per customer
($90)
($90)
Profit (loss) per customer
$102
$738
Is the profit sufficient?
Yes
Yes
3.1)
Calculation of the manufacturing cost per unit for each product line using ABC
Engineering Support
Cost (A).
$53,600
(A/B) $536
per modification
Engineering modifications (B).
(14+86) = 100
Electricity
Prices
$42,880
$4.00
Per machine hour
Hours of operation
10,720
Installation
Prices
$171,520
$306,29
Per batch
Batches
(200+360) = 560
Overhead Assigned
Activity Driver
Activity rate
Total Overhead Cost
Product A
Engineering support
14
Modifications
$536
per modification
$7,504
Electricity
6,400
Hours of operation
$4.00
Per machine hour
$25,600
Installation
200
Lots
$306,29
Per batch
$61,257
Total Overhead Costs (A)
$61,257
Units Produced (B).
16,000 units
Overhead cost per unit (A/B)
$3.83
Product B
Engineering support
86
Modifications
$536
per modification
$46,096
Electricity
4,320
Hours of operation
$4.00
Per machine hour
$17,280
Installation
360
Lots
$306,29
Per batch
$110,263
Total Overhead Costs (A).
$110,263
Production of units (B)
3,600units
Overhea cost per unit (A/B)
$30.63
Total manufacturing costs
Product A
Product B
Direct Materials per unit
$20
$30
Direct Labor per unit
$16
$48
Overhead per unit
$3.83
$30.63
Total manufacturing cost per unit
$39.83
$108.63
3.2)
3.2 Calculation per unit of gross profit
Product A
Product B
Market price
50
200
Manufacturing cost per unit
(39.83)
(108.63)
Gross Profit per unit
$10.17
$91.37
4.1 Gross profit from each customer who uses ABC to purchase Product A or Product B
Product A
Product B
Gross Profit per unit
10.17
91.37
Per customer, units purchased
32
9
Gross profit (loss) per customer
325.44
822.33
4.2 Does Product A and/or B have sufficient gross profits to satisfy their customers using ABC?
Product A
Product B
Gross profit (loss) per customer
325.44
822.33
Customer service cost per customer
(90)
(90)
Profit (loss) per customer
235.44
(732.33)
Is ABC a good profit?
Yes
Yes
Conclusion
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