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Problem 17-5A (concluded)
4. Mixing & Cooking ($4,500 + $11,250)/1,500 MH $10.50/MH
Product testing $112,500/600 batches $187.50/batch
Machine calibration $250,000/400 production runs $625/run
Labeling & Defects ($12,000 + $6,000)/120,000 cases $0.15/case
Recipe formulation $90,000/45 focus groups $2,000/group
Problem 17-1B (45 minutes)
1. Plantwide overhead rate:
Engineering support $ 56,250
Electricity 112,500
Setup costs 41,250
Total overhead cost $ 210,000
2. Profit per customer Standard Deluxe
Gross profit per unit $3.80 $ 12.80
x units per customer
Problem 17-1B (concluded)
3. Eng. support $56,250/(50 + 25) modifications = $750/modification
Electricity $112,500/150,000* machine hours = $0.75/machine hour
Setup $41,250/(175 + 75) batches = $165/batch
* From part 1
Standard
Deluxe
Engineering
50 mods. x $750
$37,500
25 mods. x $750
$ 18,750
Electricity
120,000 MH x $0.75
90,000
30,000 MH x $0.75
22,500
Setups
175 batches x $165
28,875
75 batches x $165
12,375
Total overhead
$156,375
$53,625
÷ units
÷ 40,000
÷ 10,000
Overhead/unit
$ 3.91
$ 5.36
Direct material
4.00
8.00
Direct labor
80.00
100.00
Mfg. cost/unit
$ 87.91
$ 113.36
Selling price
$ 92.00
$ 125.00
Mfg. cost/unit
87.91
113.36
Gross profit/unit
$ 4.09
$ 11.64
4. Standard Deluxe
Gross profit per unit $ 4.09 $ 11.64
x units per customer* x 40 units x 10 units
5. ABC gives more appropriate information to managers because it
identifies the resources consumed by each product line, and assigns
Problem 17-2B (25 minutes)
1. The major costs of making the boxes are designing the boxes, setting
up machines to make the right cuts, cutting the cardboard, printing
2. Midwest has taken on more custom-made boxes for smaller-volume
3. Yes. Midwest’s old customers bought the same type of boxes over
and over, so the design costs were spread over many units. The new
4. Possibly. If ABC had been used rather than a volume-based system,
Midwest would have realized that small customers who want custom-
5. ABC gives managers information about the activities and the costs of
Problem 17-3B (45 minutes)
1. Control levels
Wrapping Unit level
2. Wrapping $500,000/100,000 units $5/unit
Assembling* $400,000/20,000 direct labor hours $20/DLH
Product design $180,000/3,000 design hours $60/des. hr.
Obtaining license* $100,000/20,000 direct labor hours $5/DLH
3.
Holiday Basket
Executive Basket
Wrapping
8,000 units x $5 .............
$ 40,000
1,000 units x $5 .............
$ 5,000
Assembling
2,000 DLH x $20 ............
40,000
500 DLH x $20 ...............
10,000
Product design
40 design hrs x$60 ........
2,400
40 design hrs x$60 ........
2,400
Obtaining Lic.
2,000 DLH x $5 ..............
10,000
500 DLH x $5 .................
2,500
Cooking
80 batches x $270 .........
21,600
200 batches x $270 .......
54,000
Total ovhd. cost
$114,000
$73,900
Problem 17-3B (concluded)
4. Cost per unit Holiday Basket Executive Basket
5. Plantwide overhead rate
Wrapping ($300,000 + $200,000) $ 500,000
Assembling 400,000
Product Design 180,000
6.
Holiday Basket Executive Basket
Activity based cost per unit $14.25 $73.90
Plantwide cost per unit $18.13 $36.25
Problem 17-4B (30 minutes)
1. Components $495,000/(450,000 + 100,000) parts $0.90/part
Assembly labor $244,800/(15,000 + 2,000) DLH $14.40/DLH
Maintenance $100,800/(5,000 + 2,000) MH $14.40/MH
Packaging materials $460,800/(150,000 + 10,000) boxes $2.88/box
Problem 17-5B (50 minutes)
1. Total overhead = $215,630 + $399,480 + $515,600
Total direct labor hours 2,600 DLH + 1,600 DLH
= $1,130,710 = $269.22/DLH (rounded)
2. Total manufacturing cost per unit:
3. Gross profit per unit
Selling price per unit $65.00 $200.00
Problem 17-5B (continued)
4. Pattern alignment $64,400/560 batches $115/batch
Cutting $50,430/12,300 machine hours $4.10/MH
Moving product $100,800/2,400 moves $42/move
Sewing $327,600/4,200 direct labor hours $78/DLH
Inspecting $24,000/600 inspections $40/inspection
