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Asked: 2022-04-11T19:38:33+00:00 In:

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

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♦ Relevant knowledge
ABC costing method: In the case of activity-based costing, initial actions are identified, then cost estimates are made for common cost pools, and an overhead cost is determined for every cost pool based on the cost-driver for each activity. Because it pinpoints specific cost-drivers, it gives more precise costs than the traditional costing techniques.
abc costingaccountingprofit
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1 Answer

  1. Best Answer
    Tadros Company
    Total Manufacturing overhead Amount $ Note
    Engineering Support 25,500.00
    Cost of electricity 24,800.00
    Installation costs 42,000.00
    Total Manufacturing overhead 92,300.00 A
    Answer 1
    Calculation of Predetermined OH Rate Product A Product B Total
    Volume 10,000.00 2,000.00 B
    Direct Labor Hour Per unit 0.50 1.50 C
    Total Direct Labor Hours 5,000.00        3,000.00 8,000.00 D=B*C
    Total Manufacturing overhead 92,300.00 See A
    Predetermined OH Rate              11.54 F=A/D
    Allocated OH per unit 5.77 G=F*C
    Direct Labor per hour                              20.00 H
    Direct Labor cost per unit 10.00 I=H*C
    Total manufacturing cost Product A
    Direct Materials 13.00
    Direct Labor 10.00 See I
    Allocated OH per unit 5.77 See G
    Total manufacturing cost                              28.77 J
    Answer 1.2 Product A
    Price marker 35.00 K
    Manufacturing cost per unit 28.77 See J
    Gross profit per unit 6.23 L=K-J
    Answer 2.1
    Units purchased per customer Product A
    Volume 10,000.00 See B
    Number of customers 500.00 M
    Units purchased per customer                              20.00 N=B/M
    Gross profit generated by each customer
    Gross profit per unit 6.23 See L
    Per customer, units purchased 20.00 See N
    Gross profit per customer                            124.60 O=L*N
    Answer 2.2
    Customer service cost per customer Product A Product B Total
    Number of customers 500.00 400.00            900.00 P
    Customers costs 70,000.00 Q
    Customer service cost per customer          77.78 R=Q/P
    Product A
    Gross profit per customer 124.60 See O
    Customer service cost per customer 77.78 See R
    Profit (loss) per customer 46.82 S=O-R
    Profit is positive so profit is adequate.
    Answer 3.1
    Calculation of machine hours Product A Product B Total
    Volume 10,000.00 2,000.00 See B
    Machine Hour Per unit 0.40 1.10 T
    Total machine hours 4,000.00        2,200.00 6,200.00 U=B*T
    Calculation of ABC rates for overhead V W X Y=W+X Z=V/Y
    Activity usage
    Activity cost pool Activity Measure Cost Product A Product B Total ABC rates
    Engineering Support Engineering modifications 25,500.00 10.00 50.00 60.00 425
    Cost of electricity Machine Hours 24,800.00 4,000.00 2,200.00 6,200.00 4.00
    Installation costs Batches 42,000.00 110.00 220.00 330.00 127.27
    Total Cost assigned 92,300.00
    Allocation table
    Product A See Z See W AA=Z*W
    Activity cost pool Activity Measure ABC Rates Activity used Cost assigned
    Engineering Support Engineering modifications 425 10.00 4,250.00
    Cost of electricity Machine Hours 4.00 4,000.00 16,000.00
    Installation costs Batches 127.27 110.00 14000.00
    Total Cost assigned 34,250 AB
    Produced units 10,000.00 See B
    Costs per unit 3.43 AC=AB/B
    Total manufacturing cost Product A
    Direct Materials 13.00
    Direct Labor 10.00 See I
    Allocated OH per unit 3.43 See AC
    Total manufacturing cost                              26.43 AD
    Answer 3.2 Product A
    Price marker 35.00 K
    Manufacturing cost per unit 26.43 See AD
    Gross profit per unit 8.57 AE=K-D
    Answer 4.1
    Gross profit generated by each customer
    Gross profit per unit 8.57 See AE
    Per customer, units purchased 20.00 See N
    Gross profit per customer 171.40 AF=AE*N
    Answer 4.2 Product A
    Gross profit per customer 171.40 See AF
    Customer service cost per customer 77.78 See R
    Profit (loss) per customer 93.6 AG=AF-R
    Profit is positive so profit is adequate.
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