Vargo Company makes two distinct products with the following information available for each.

The company’s direct labor rate is $20 per direct labor hour (DLH). Additional information follows.

Required

1. Compute the manufacturing cost per unit using the plantwide overhead rate based on machine hours. What is the gross profit per unit?

2. How much gross profit is generated by each customer of the standard product using the plantwide overhead rate? How much gross profit is generated by each customer of the deluxe product 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 the standard product using ABC? How much gross profit is generated by each customer of the deluxe product using ABC? Is the gross profit per customer adequate?

5. Which method of product costing gives better information to managers of this company? Explain.

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Standard Deluxe $8 per unit 5DLH per unit Direct labor hours.. ..4 DLH per unit Machine hours 3MH per unit 3 MH per unit 75 batches 10,000 units 175 batches Engineering modifications 50 modifications 25 modifications Number of customers0 ers 000 customers Market price $92 per unit 1,000 customers 1,000 $125 per unit Costs Driver Indirect manufacturing Engineering support.$56,250 Engineering modifications Setup costs. Customer service. 12,500 Machine hours 41,250 Batches Nonmanufacturing 250,000 Number of customers