4-1a

Problem 4-1A

1. Plantwide rate

Engineering support $ 24,500

Electricity 34,000

Setup costs 52,500

Total manufacturing overhead $111,000

÷ 6,200* direct labor hours = $17.90/DLH

*rounded

* Product A 10,000 units x 0.3 DLH/unit = 3,000 DLH

Product B 2,000 units x 1.6 DLH/unit = 3,200 DLH

6,200 DLH

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Product A Product B

Direct materials per unit $15.00 $24.00

Direct labor per unit

A: 0.3 DLH/unit @ $20/DLH 6.00

B: 1.6 DLH/unit @ $20/DLH 32.00

Manufacturing overhead per unit

A: 0.3 DLH/unit @ $17.90/DLH 5.37

B: 1.6 DLH/unit @ $17.90/DLH ______ 28.64

Total manufacturing cost per unit $26.37 $84.64

| Product A | Product B |

Selling price per unit | $30.00 | $120.00 |

Manufacturing cost per unit | 26.37 | 84.64 |

Gross margin per unit | $ 3.63 | $ 35.36 |

2. Product A Product B

Gross margin per unit $ 3.63 $35.36

x Units purchased per customer

A: 10,000 units/500 customers x 20 units

B: 2,000 units/400 customers _________ x 5 units

Gross margin per customer $72.60 $176.80

Total customer service cost $81,000

÷ number of customers ÷ 900 customers

Customer service cost per customer $90/customer

Problem 4-1A (continued)

We see that the gross margin per customer from Product A ($72.60) is not adequate to cover the cost of providing service to customers of this product ($90). It appears that the company is incurring a loss associated with each customer of Product A.

3. Engineering Support $24,500/(12 + 58) modifications $350/modification

Electricity $34,000/3,400* machine hours $10/MH

Setup $52,500/(125 + 225) batches $150/batch

*Product A 10,000 units x 0.1 MH/unit = 1,000 MH

Product B 2,000 units x 1.2 MH/unit = 2,400 MH

3,400 MH

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Product A...