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Comparing costs using ABC with the plantwide overhead rate. The following data are for the two products produced by Tadros Company.
Comparing costs using ABC with the plantwide overhead rate.
The following data are for the two products produced by Tadros Company.
Product AProduct B
Direct Materials$15 per unit$24 per unit
Direct Labor Hours0.3 DLH per unit1.6 DLH per unit
Machine Hours0.1 MH per unit1.2 MH per unit
Batches125 batches225 batches
Volume10,000 units2,000 units
Engineering modifications12 modifications58 modifications
Number of customers500 customers400 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.
CostsDriver
Indirect manufacturing
Engineering support$24,000Engineering modifications
Electricity 34,000Machine hours
Setup costs 52,500Batches
Nonmanufacturing
Customer service81,000Number of customers
Required
- Compute the manufacturing cost per unit using the plantwide overhead rate based on direct labor hours. What is the gross profit per unit?
- 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?
- Determine the manufacturing cost per unit of each product line using ABC. What is the gross profit per unit?
- 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?
- Which method of product costing gives better information to managers of this company? Explain why
