FUNDAMENTAL ACCOUNTING PRINCIPLES
FUNDAMENTAL ACCOUNTING PRINCIPLES
24th Edition
ISBN: 9781264044375
Author: Wild
Publisher: McGraw-Hil
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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.

Requirement 1:

Expert Solution
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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

  Plantwide Overhead Rate = Total Overhead CostDirect Labor Hours                                                  = *$111,000**6,200 DLH                                                 = $17.90 per DLH *Total Overhead Cost = Engineering Support + Electricity + Setup Costs                                         = $24,500 + $34,000 + $52,500                                         = $111,000

    &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.

Requirement 2:

Expert Solution
Check Mark

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

  Gross Profit per Customer = Gross profit per Unit X *Units per Customer                     Product A =$3.63 X20 units per customer = $72.60                     Product B =$35.36 X 5 units per customer = $176.80*Units per Customer = VolumeNumber of Customers         Product A = 10,000 units500 customers                             = 20 units per customer       Product B = 2,000 units400 customers                              = 5 units per customer

Requirement 3:

To determine

Compute the cost of providing customer service to each customer.

Requirement 3:

Expert Solution
Check Mark

Answer to Problem 4APSA

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

Explanation of Solution

  Cost of Customer Service per Customer            =Total Customer ServiceTotal Number of Customer Service               = $81,000900 Customers               = $90 per Customer

Requirement 4:

To determine

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

Requirement 4:

Expert Solution
Check Mark

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

  Engineering Support = $24,50012 + 58 Modifications   = $350 per modificationElectricity = $34,000 1,000 + 2,400  Machine Hours   = $10 per Machine HourSetup Costs = $52,500125 + 225 batches   = $150 per batch 

    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.

Requirement 5

Expert Solution
Check Mark

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

  Gross Profit per Customer = Gross profit per Unit X *Units per Customer                     Product A =$5.70 X20 units per customer = $114                     Product B =$24.97 X 5 units per customer = $124.85*Units per Customer = VolumeNumber of Customers         Product A = 10,000 units500 customers                             = 20 units per customer       Product B = 2,000 units400 customers                              = 5 units per customer

  Cost of Customer Service per Customer            =Total Customer ServiceTotal Number of Customer Service               = $81,000900 Customers               = $90 per Customer

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Chapter C Solutions

FUNDAMENTAL ACCOUNTING PRINCIPLES

Ch. C - Prob. 1DQCh. C - Complete the following for a traditional two-stage...Ch. C - What is the difference between operating...Ch. C - What is activity-based costing? What is its goal?Ch. C - What is a cost object?Ch. C - What is an activity cost driver?Ch. C - What company circumstances especially encourage...Ch. C - Identify at least four typical cost pools for...Ch. C - In activity-based costing, costs in a cast pool...Ch. C - Prob. 10DQ
Ch. C - Prob. 11DQCh. C - Prob. 1QSCh. C - Computing plantwide overhead rates P1 Chan Company...Ch. C - Computing overhead rates under ABC P2 Refer to the...Ch. C - Prob. 4QSCh. C - Prob. 5QSCh. C - Prob. 6QSCh. C - Prob. 7QSCh. C - Prob. 1ECh. C - Prob. 2ECh. C - Prob. 3ECh. C - Prob. 4ECh. C - Prob. 5ECh. C - Exercise C-6 Activity-based costing P2 Northwest...Ch. C - Problem C-1A Applying activity-based costing P1 P2...Ch. C - Prob. 2APSACh. C - Prob. 3APSACh. C - Prob. 4APSACh. C - Prob. 5APSACh. C - Prob. 6APSACh. C - Prob. CSP
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