The following data are for the two products produced by Tadros Company Product A

Question

The following data are for the two products produced by Tadros Company Product A Product B Direct materials Direct labor hours Machine hours Batches Volume Engineering modifications Number of customers Market price $15 per unit $26 per unit 0.6 DLH per unit 0.5 MH per unit 100 batches 10,000 units 10 modifications 500 customers 1.4 DLH per unit 1.0 MH per unit 200 batches 2,000 units 50 modifications 400 customers $35 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 Electricity Setup costs $26,500 Engineering modifications 42,000 Machine hours 43,000 Batches Nonmanufacturing Customer service 73,000 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. Direct labor hours Activity Driver OH Cost per unit Overhead Assigned Product A ProductB Plantwide OH rate Total Overhead Cost Units Produced Product A Product B

Explanation / Answer

Answer: 1 The plantwide overhead rate would be calculated as follows: Plantwide overhead rate = (26500+42000+43000)/(10000*0.6+2000*1.4)                     12.67 Overhead assigned Activity Driver Plantwide OH rate Total Overhead Cost Units Produced OH Cost per unit Product A 6000                     12.67             76,022.73 10000                       7.60 (10,000*0.6) (6,000*20.97) (125,795.45/10,000) Product B 2800                     12.67             35,477.27 2000                     17.74 (2,000*1.4) (2,800*20.97) (58,704.55/2,000) Manufacturing cost per unit would be: Product A Product B Direct Material $                 15.00 $                 26.00 Direct Labor $                 12.00 $                 28.00 Manufacturing overhead $                   7.60 $                 17.74 Cost per unit $                 34.60 $                 71.74 1.2 The gross profit per unit would be: Product A Product B Market price 35 95 Less: Cost per unit $                 34.60 $                 71.74 Gross Profit $                   0.40 $                 23.26 (35-34.60) (95-71.74) 2.1 The gross profit generated by each customer of Product A and B Gross profit per unit $                   0.40 $                 23.26 Units purchased per customer 20 5 (10000 units/500customer) (2000 units/400 customer) Gross profit per customer $                   7.95 $              116.31 (0.4*20) (23.26*5) 2.2 The cost of prodiving customer service to each customer Customer Service Cost 73000 $                 81.11 (73000/900) Number of customer 900 Adequacy of profit for each product using plantwide overhead rate Product A Product B Gross profit per customer $                   7.95 $              116.31 Less: Customer service cost per customer $                 81.11 $                 81.11 Profit/(Loss) per customer $               -73.16 $                 35.20 (7.95-81.11) (116.31-81.11) Is the profit adequate? No Yes (As there is a loss of $73.16 per customer)

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