Ques 1

Overhead costs $ 221,952.00 $ 96.00 per DLH

Direct Labor Hours 2312
Overhead Assigned Activity Driver Plantwide OH Rate Total Overhead cost Units produced OH Cost per unit
Product A 2000 $ 96.00 $ 192,000.00 12500 $ 15.36
Product B 312 $ 96.00 $ 29,952.00 1200 $ 24.96

Total Manufacturing cost Product A Prodct B

Direct material cost per unit $ 1.50 $ 2.30
Direct Labor cost per unit $ 4.32 $ 7.02
Overhead cost per unit $ 15.36 $ 24.96
Total Manufacturing cost $ 21.18 $ 34.28

Working
Product A Prodct B
Units 12500 1200
Hrs per unit 0.16 0.26
Total Hours 2000 312 2312

Hrs per unit 0.16 0.26

Rate $ 27.00 $ 27.00
Total Labor cost per unit $ 4.32 $ 7.02

Ques 2
Product A Prodct B
Market Price $ 26.30 $ 61.00
Manufacturing cost per unit $ (21.18) $ (34.28)
Profit(loss) per unit $ 5.12 $ 26.72

Ques 3
Machine setup
Overhead costs $ 63,002.00 $ 3,500.11 per setup
Number of setups 18

Materials Handling
Overhead costs $ 55,000.00 $ 0.90 per setup
Number of setups 60800

Quality control
Overhead costs $ 103,950.00 $ 330.00 per setup
Number of setups 315

Overhead Assigned Activity driver Activity rate Total overhead cost

Product A
Machine Setup 6 setups $ 3,500.11 per setup $ 21,000.67
Materials Handling 50000 part $ 0.90 per part $ 45,230.26
Quality Control 60 inspection hours $ 330.00 per inspection hour $ 19,800.00
Total overhead costs assigned $ 86,030.93
Total units produced 12500
Overhead cost per unit $ 6.88

Product B
Machine Setup 12 setups $ 3,500.11 per setup $ 42,001.33
Materials Handling 10800 part $ 0.90 per part $ 9,769.74
Quality Control 255 inspection hours $ 330.00 per inspection hour $ 84,150.00
Total overhead costs assigned $ 135,921.07
Total units produced 1200
Overhead cost per unit $ 113.27

Total Manufacturing cost Product A Prodct B

Direct material cost per unit $ 1.50 $ 2.30
Direct Labor cost per unit $ 4.32 $ 7.02
Overhead cost per unit $ 6.88 $ 113.27
Total Manufacturing cost $ 12.70 $ 122.59

Ques 4
Product A Prodct B
Market Price $ 26.30 $ 61.00
Manufacturing cost per unit $ (12.70) $ (122.59)
Profit(loss) per unit $ 13.60 $ (61.59)

Ques 4-b Yes

Using this approach (activity based costing) the company sees that Product B is not profitable, and
Product A is profitable. The company should evaluate the activities used to produce Product B and
determine how costs can be reduced. If they cannot be reduced, the company should consider
discontinuing Product B. Volume-based costing overstates the cost of high-volume products and
understates the cost of low-volume products. ABC more accurately reflects the cost of production by
assigning costs to product lines based on the activities required to produce them