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Comparing costs using ABC with the plantwide overhead rate

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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.

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

1. Compute the manufacturing cost per unit using the plantwide overhead rate based on direct labor hours. What is the gross profit per unit?
2. 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?
3. Determine the manufacturing cost per unit of each product line using ABC. What is the gross profit per unit?
4. 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?
5. Which method of product costing gives better information to managers of this company? Explain why