Chapter C, Problem 4APSA

Requirement 1:

To determine

Compute the manufacturing cost per unit using the plantwide overhead rate based on direct labor hours and determine the gross profit per unit.

Answer to Problem 4APSA

Gross Profit per Unit
	Product A	Product B
Manufacturing Cost per unit	$26.37	$84.64
Gross Profit per unit	$3.63	$35.36

Explanation of Solution

Computation of Manufacturing Cost per Unit
	Product A	Product B
Direct Materials per Unit	$15	$24
Direct Labor per Unit	$6 (0.3 DLH per unit × $20 per DLH)	$32 (1.6 DLH per unit × $20 per DLH)
Overhead Cost per Unit	$5.37 (0.3 DLH per unit × $17.90 per DLH)	$28.64 (1.6 DLH per unit × $17.90 per DLH)
Manufacturing Cost per unit	$26.37	$84.64

  $\begin{array}{l}PlantwideOverheadRate=\frac{TotalOverheadCost}{DirectLaborHours}\hfill \\ =\frac{*\$111,000}{**6,200DLH}\hfill \\ =\$17.90perDLH\hfill \\ \hfill \\ *TotalOverheadCost=EngineeringSupport+Electricity+SetupCosts\hfill \\ =\$24,500+\$34,000+\$52,500\hfill \\ =\$111,000\hfill \end{array}$

&Total Direct Labor Hours
Product A (10,000 units × 0.3 DLH per unit)	3,000 DLH
Product B (2,000 units × 1.6 DLH per unit)	3,200 DLH
Total Direct Labor Hours	6,200 DLH

Computation of Gross Profit per unit
	Product A	Product B
Selling Price per unit	$30	$120
Manufacturing Cost per unit	$26.37	$84.64
Gross Profit per unit	$3.63	$35.36

Requirement 2:

To determine

Determine the gross profit per customer of Product A and Product B using the plantwide overhead rate.

Answer to Problem 4APSA

Gross Profit per Customer
Product A	Product B
$72.60	$176.80

Explanation of Solution

Computation of Gross Profit per Customer

  $\begin{array}{l}GrossProfitperCustomer=GrossprofitperUnitX*UnitsperCustomer\hfill \\ ProductA=\$3.63X20unitspercustomer=\$72.60\hfill \\ \begin{array}{l} ProductB=\$35.36X5unitspercustomer=\$176.80\\ \end{array}\hfill \\ *UnitsperCustomer=\frac{Volume}{NumberofCustomers}\hfill \\ ProductA=\frac{10,000units}{500customers}\hfill \\ =20unitspercustomer\hfill \\ ProductB=\frac{2,000units}{400customers} \hfill \\ =5unitspercustomer\hfill \end{array}$

Requirement 3:

To determine

Compute the cost of providing customer service to each customer.

Answer to Problem 4APSA

The cost of providing customer service to each customer is $90.

Explanation of Solution

  $\begin{array}{l}CostofCustomerServiceperCustomer\hfill \\ =\frac{TotalCustomerService}{TotalNumberofCustomerService}\hfill \\ =\frac{\$81,000}{900Customers}\hfill \\ =\$90perCustomer\hfill \end{array}$

Requirement 4:

To determine

Compute the manufacturing cost per unit and gross profit per unit of each product line using ABC.

Answer to Problem 4APSA

Gross Profit per Unit
	Product A	Product B
Manufacturing Cost per unit	$24.30	$95.03
Gross Profit per unit	$5.70	$24.97

Explanation of Solution

Computation of Manufacturing Cost per Unit
	Product A	Product B
Direct Materials per Unit	$15	$24
Direct Labor per Unit	$6 (0.3 DLH per unit × $20 per DLH)	$32 (1.6 DLH per unit × $20 per DLH)
Overhead Cost per Unit (Total Overhead Cost / Volume)	$3.30 ($32,950 / 10,000 units)	$39.03 ($78,050 / 2,000 units)
Manufacturing Cost per unit	$24.30	$95.03

Computation of Indirect Manufacturing Cost for each product line
	Product A	Product B
Engineering Support per modification	$4,200 (12 modifications × $350)	$20,300 (58 modifications × $350)
Electricity per machine hour	$10,000 (1,000 MH × $10)	$24,000 (2,400 MH × $10)
Setup Costs per batch	$18,750 (125 batches × $150)	$33,750 (225 batches × $150)
Total Overhead Cost	$32,950	$78,050

  $\begin{array}{l}EngineeringSupport=\frac{\$24,500}{12+58Modifications}=\$350permodification\hfill \\ Electricity=\frac{\$34,000}{1,000+2,400MachineHours}=\$10perMachineHour\hfill \\ SetupCosts=\frac{\$52,500}{125+225batches}=\$150perbatch\hfill \\ \hfill \end{array}$

Computation of Gross Profit per unit
	Product A	Product B
Selling Price per unit	$30	$120
Manufacturing Cost per unit	$24.30	$95.03
Gross Profit per unit	$5.70	$24.97

Requirement 5

To determine

Determine whether the gross profit per customer for each of these products is greater than the cost of providing customer service.

Answer to Problem 4APSA

The gross profit per customer for each of these products is greater than the cost of providing customer service.

	Product A	Product B
Gross Profit per Customer	$114	$124.85
Customer Service per Customer	$90	$90

Explanation of Solution

  $\begin{array}{l}GrossProfitperCustomer=GrossprofitperUnitX*UnitsperCustomer\hfill \\ ProductA=\$5.70X20unitspercustomer=\$114\hfill \\ \begin{array}{l} ProductB=\$24.97X5unitspercustomer=\$124.85\\ \end{array}\hfill \\ *UnitsperCustomer=\frac{Volume}{NumberofCustomers}\hfill \\ ProductA=\frac{10,000units}{500customers}\hfill \\ =20unitspercustomer\hfill \\ ProductB=\frac{2,000units}{400customers} \hfill \\ =5unitspercustomer\hfill \end{array}$

  $\begin{array}{l}CostofCustomerServiceperCustomer\hfill \\ =\frac{TotalCustomerService}{TotalNumberofCustomerService}\hfill \\ =\frac{\$81,000}{900Customers}\hfill \\ =\$90perCustomer\hfill \end{array}$