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Comparing costs using ABC with the plantwide overhead rate

The following data are for the two products produced by Aplan Company.

Product A Product B
Direct materials $ 15 per unit $ 24 per unit
Direct labor hours 0.3 DLH per unit 1.6 DLH per unit
Machine hours 0.1 MH per unit 1.2 MH per unit
Batches 125 batches 225 batches
Volume 10,000 units 2,000 units
Engineering modifications 12 modifications 58 modifications
Number of customers 500 customers 400 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.

Costs Driver
Indirect manufacturing
Engineering support $ 24,500 Engineering modifications
Electricity 34,000 Machine hours
Setup costs 52,500 Batches
Nonmanufacturing
Customer service 81,000 Number of customers

Requirement 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 and Product B using the plantwide overhead rate?

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?

Solution Summary

The solution compares costs using ABC with the plantwide overhead rate

$2.19