Product Learner Or Problem 17.2a Part 22 Compute The Act

917t1391011product Lerel Orproblem 17 2a Part 22 Comqute The Act

Compute the activity overhead rates using ABC. Form cost pool to 2 decimal places. Omit the "$" sign in your response. Use the information provided for the activity cost pools, including machine hours, engineering hours, batches, and direct labor hours, to calculate the activity rates and allocate overhead costs accordingly. Then, determine overhead costs to assign to specific jobs and compute the overhead cost per unit for each product using ABC. Finally, calculate the gross profit per unit and the gross profit generated by each customer for each product, considering the costs and selling prices provided. Assess whether the gross profit per customer is adequate for each product.

Paper For Above instruction

The task involves comprehensive activity-based costing (ABC) analysis to accurately allocate overhead costs and evaluate the profitability of different products and customer segments. Initially, activity overhead rates are computed by dividing the total overhead for each activity pool—such as machine hours, engineering hours, batches, and direct labor hours—by their respective volume bases. These rates facilitate precise allocation of overhead costs to jobs based on their specific activity consumption, replacing traditional plantwide overhead rates that often distort product costs.

Using the provided activity data, the overhead rates are calculated with all intermediate steps rounded to two decimal places, with the dollar sign omitted, as per instructions. For example, if the total overhead for machine hours is $522,888 and total machine hours are 2,204, then the activity rate for machine hours is computed as $522,888 divided by 2,204, resulting in a rate of approximately $237.12 per machine hour. Similar calculations are conducted for engineering hours, batches, and direct labor hours. These activity rates are then used to determine overhead costs assigned to each job, such as Job 4286, by multiplying the activity rate by the specific activity consumption for that job.

Subsequently, the manufacturing cost per unit for each product is determined by summing direct materials, direct labor, and allocated overhead costs using ABC. This enables a more accurate understanding of the true cost structure of each product, considering the precise activities involved in production. The gross profit per unit is then obtained by subtracting the manufacturing cost per unit from the selling price, which is provided as $35 for Product A and an assumed market price of $90 or $160 in different scenarios.

The analysis proceeds to aggregate gross profit for each customer in terms of profit per customer, based on the number of customers served and the gross profit per unit. Additionally, the cost of providing customer service per customer is calculated, including costs like engineering support and customer service expenses, divided by the number of customers, providing insight into the profitability of each customer relationship.

Further, the evaluation extends to comparing product costs and profitability using traditional plantwide overhead rates versus activity-based costing. This comparison reveals differences in cost per unit and gross profit, highlighting the impact of more refined costing methods on decision-making. The gross profit per unit is recalculated with ABC, and the effectiveness of each costing method on managerial decision-making is discussed.

Lastly, profitability decisions under varying market prices are analyzed, calculating gross profit or loss per unit at different selling prices. The results influence decisions about whether to retain or eliminate specific products. The comprehensive analysis provides managerial insights into cost management, pricing strategies, and customer profitability, emphasizing the importance of accurate cost allocation methods like ABC in optimizing business performance.

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