Answer:
Tadros Company
Plantwide method:
Product A Product B
1.1. Manufacturing cost per unit $40 $85
1.2 Gross profit per unit $15 $135
2.1 Gross profit per customer $300 $675
2.2 Customer of customer to each customer is:
= $80
The gross profit is adequate for each customer.
ABC method:
Product A Product B
3.1The Manufacturing cost per unit $36.26 $101.61
3.2 Gross profit per unit $18.74 $118.39
4.1 Gross profit per customer $374.85 $591.94
4.2 Cost of customer service to each customer is $80.
The Gross profit per customer is adequate.
5. The ABC product costing method gives better information to managers of Tadros Company.
c. Activity-based costing method
Explanation:
a) Data and Calculations:
Product A Product B
Direct materials $20 per unit $30 per unit
Direct labor hours 0.5 DLH/unit 1.5 DLH per unit
Total direct labor hours 8,000 (0.5*16,000) 5,400 (1.5*3,600)
Direct labor costs $160,000 ($20*8,000) $108,000 ($20*5,400)
Machine hours 0.4 MH per unit 1.2 MH per unit
Batches 200 batches 360 batches
Volume 16,000 units 3,600 units
Engineering modifications 20 modifications 80 modifications
Number of customers 800 customers 720 customers
Market price $55 per unit $220 per unit
Direct labor rate = $20 per direct labor hour (DLH).
Overhead rates based:
a. Plantwide Method:
Total manufacturing overhead costs/Total direct labor hours
$268,000/13,400 = $20
Cost of production:
Product A Product B
Direct materials per unit $320,000 $90,000
Direct labor hours per unit DLH 160,000 108,000
Overhead costs 160,000 108,000
Total production costs $640,000 $306,000
Volume 16,000 units 3,600 units
Manufacturing cost per unit $40 $85
Income Statement:
Product A Product B
Sales Revenue ($55 and $220) $880,000 $792,000
Total production costs 640,000 306,000
Gross profit $240,000 $486,000
Volume 16,000 units 3,600 units
Gross profit per unit $15 $135
Gross profit $240,000 $486,000
Customers 800 customers 720 customers
Gross profit per customer $300 $675
b. Departmental Method:
c. ABC Method:
Additional information follows:
Cost Pools Overhead Costs Driver
Indirect manufacturing
Engineering support $ 53,600 Engineering modifications
Electricity 53,600 Machine hours
Setup costs 160,800 Batches
Nonmanufacturing
Customer service 121,600 Number of customers
Overhead rate using ABC:
Cost Pools Overhead Costs Driver Rates
Indirect manufacturing
Engineering support $ 53,600 100 modifications = $536
Electricity 53,600 10,720 Machine hours $5
Setup costs 160,800 560 Batches $287
Customer service 136,800 1,520 customers $90
Cost of production:
Product A Product B
Direct materials per unit $320,000 $90,000
Direct labor hours per unit DLH 160,000 108,000
Overhead costs:
Engineering support 10,720 42,880
Electricity 32,000 21,600
Setup costs 57,400 103,320
Total production costs $580,120 $365,800
Volume 16,000 units 3,600 units
Manufacturing cost per unit $36.26 $101.61
Income Statement:
Product A Product B
Sales Revenue ($55 and $220) $880,000 $792,000
Total production costs 580,120 365,800
Gross profit $299,880 $426,200
Volume 16,000 units 3,600 units
Gross profit per unit $18.74 $118.39
Gross profit $299,880 $426,200
Customers 800 customers 720 customers
Gross profit per customer $374.85 $591.94
Total production costs $580,120 $365,800
Customers 800 customers 720 customers
Cost per customer $725.15 $508.06
Customer service costs
Customer service $121,600/1,520 = $80
