Wade 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.
Costs Driver
Indirect manufacturing
Engineering support . . . . . . . ................... $ 56,250 ........Engineering modifications
Electricity . . . . . . . . . . . . . . .................... 112,500.....................Machine hours
Setup costs. . . . . . . . . . . . . . ...................... 41,250 ............................Batches
Nonmanufacturing
Customer service . . . . . ..................... . . . . 250,000............. Number of customers
Required
1. Compute the manufacturing cost per unit using the plant wide 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 plant wide overhead rate? How much gross profit is generated by each customer of the deluxe product using the plant wide 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.

Transcribed Image Text:

Deluxe Direct materials $4 per unit $8 per unit ._... . Machine hours Batches .. Volume. . .4 DLH per unit 5 DLH per unit 3MH per unit . 175 batches 3 MH per unit 75 batches 10,000 units 40,000 units 50 modifications 25 modifications 1,000 customers 000 customers $92 per unit Market price $125 per unit