Question

Consider the following data for two products of Gitano Manufacturing.

Overhead Cost Product A Product B

Number of units produced 10,000 units 2,000 units

Direct labor cost 0.20 DLH per unit 0.25 DLH per unit

(@ \(24 per DLH)

Direct materials cost \)2 per unit \(3 per unit

Activity

Machine setup \)121,000

Materials handling 48,000

Quality control inspections 80,000

\(249,000

Required

1. Using direct labor hours as the basis for assigning overhead costs, determine the total production cost per unit for each product line.

2. If the market price for Product A is \)20 and the market price for Product B is $60, determine the profit or loss per unit for each product. Comment on the results.

3. Consider the following additional information about these two product lines. If ABC is used for assigning overhead costs to products, what is the cost per unit for Product A and for Product B?

Product A Product B

Number of setups required for production 10 setups 12 setups

Number of parts required 1 part/unit 3 parts/unit

Inspection hours required 40 hours 210 hours

4. Determine the profit or loss per unit for each product. Should this information influence company strategy? Explain.

Short answer

Cost per unit under the Plant-wide rate method

For Product Line A: $26.72

For Product Line B: $33.9

Cost per unit under the ABC method

For Product Line A: $16.58

For Product Line B: $84.6

Step-by-step solution

Calculation of total production cost per unit

$\begin{array}{rcl}\mathit{D}\mathit{i}\mathit{r}\mathit{e}\mathit{c}\mathit{t}\mathbf{}\mathit{L}\mathit{a}\mathit{b}\mathit{o}\mathit{r}\mathbf{}\mathit{h}\mathit{o}\mathit{u}\mathit{r}\mathbf{}\mathit{f}\mathit{o}\mathit{r}\mathbf{}\mathit{p}\mathit{r}\mathit{o}\mathit{d}\mathit{u}\mathit{c}\mathit{t}\mathbf{}\mathit{A}& \mathbf{=}& \mathit{N}\mathit{o}\mathbf{.}\mathbf{}\mathit{o}\mathit{f}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathit{s}\mathbf{\times }\mathit{D}\mathit{L}\mathbf{}\mathit{h}\mathit{o}\mathit{u}\mathit{r}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\\ & \mathbf{=}& \mathbf{10}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{0}\mathbf{.}\mathbf{2}\\ & \mathbf{=}& \mathbf{2}\mathbf{,}\mathbf{000}\mathbf{}\mathit{H}\mathit{o}\mathit{u}\mathit{r}\end{array}$

$\begin{array}{rcl}\mathit{D}\mathit{i}\mathit{r}\mathit{e}\mathit{c}\mathit{t}\mathbf{}\mathit{L}\mathit{a}\mathit{b}\mathit{o}\mathit{r}\mathbf{}\mathit{o}\mathit{u}\mathit{r}\mathbf{}\mathit{f}\mathit{o}\mathit{r}\mathbf{}\mathit{p}\mathit{r}\mathit{o}\mathit{d}\mathit{u}\mathit{c}\mathit{t}\mathbf{}\mathit{B}& \mathbf{=}& \mathit{N}\mathit{o}\mathbf{.}\mathbf{}\mathit{o}\mathit{f}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathit{s}\mathbf{\times }\mathit{D}\mathit{L}\mathbf{}\mathit{h}\mathit{o}\mathit{u}\mathit{r}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\\ & \mathbf{=}& \mathbf{2}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{0}\mathbf{.}\mathbf{25}\\ & \mathbf{=}& \mathbf{500}\mathbf{}\mathit{H}\mathit{o}\mathit{u}\mathit{r}\end{array}$

For Product Line A

role="math" localid="1656306053378" $\begin{array}{rcl}\mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{O}\mathit{v}\mathit{e}\mathit{r}\mathit{h}\mathit{e}\mathit{a}\mathit{d}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{f}\mathit{o}\mathit{r}\mathbf{}\mathit{P}\mathit{r}\mathit{o}\mathit{d}\mathit{u}\mathit{c}\mathit{t}\mathbf{}\mathit{A}& \mathbf{=}& \mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{O}\mathit{v}\mathit{e}\mathit{r}\mathit{h}\mathit{e}\mathit{a}\mathit{d}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathbf{\times }\frac{\mathbf{T}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{D}\mathbf{L}\mathbf{}\mathbf{h}\mathbf{o}\mathbf{u}\mathbf{r}\mathbf{}\mathbf{f}\mathbf{o}\mathbf{r}\mathbf{}\mathbf{p}\mathbf{r}\mathbf{o}\mathbf{d}\mathbf{u}\mathbf{c}\mathbf{t}\mathbf{}\mathbf{A}}{\mathbf{T}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{h}\mathbf{o}\mathbf{u}\mathbf{r}\mathbf{}\mathbf{f}\mathbf{o}\mathbf{r}\mathbf{}\mathbf{b}\mathbf{o}\mathbf{t}\mathbf{h}\mathbf{}\mathbf{p}\mathbf{r}\mathbf{o}\mathbf{d}\mathbf{u}\mathbf{c}\mathbf{t}\mathbf{}\mathbf{l}\mathbf{i}\mathbf{n}\mathbf{e}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{249}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{2}\mathbf{,}\mathbf{000}}{\mathbf{2}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{500}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{249}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{0}\mathbf{.}\mathbf{8}\\ & \mathbf{=}& \mathbf{\$}\mathbf{199}\mathbf{.}\mathbf{200}\end{array}$

role="math" localid="1656306165507" $\begin{array}{rcl}\mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{P}\mathit{r}\mathit{o}\mathit{d}\mathit{u}\mathit{c}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}& \mathbf{=}& \mathit{D}\mathit{i}\mathit{r}\mathit{e}\mathit{c}\mathit{t}\mathbf{}\mathit{M}\mathit{a}\mathit{t}\mathit{e}\mathit{r}\mathit{i}\mathit{a}\mathit{l}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathbf{+}\mathit{D}\mathit{i}\mathit{r}\mathit{e}\mathit{c}\mathit{t}\mathbf{}\mathit{L}\mathit{a}\mathit{b}\mathit{o}\mathit{r}\mathbf{}\mathit{c}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathbf{+}\mathit{O}\mathit{v}\mathit{e}\mathit{r}\mathit{h}\mathit{e}\mathit{a}\mathit{d}\mathbf{}\mathit{c}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\\ & \mathbf{=}& \mathbf{\$}\mathbf{2}\mathbf{+}\mathbf{(}\mathbf{\$}\mathbf{24}\mathbf{\times }\mathbf{0}\mathbf{.}\mathbf{2}\mathbf{)}\mathbf{+}\frac{\mathbf{\$}\mathbf{199}\mathbf{,}\mathbf{200}}{\mathbf{10}\mathbf{,}\mathbf{000}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{2}\mathbf{+}\mathbf{\$}\mathbf{4}\mathbf{.}\mathbf{8}\mathbf{+}\mathbf{\$}\mathbf{19}\mathbf{.}\mathbf{92}\\ & \mathbf{=}& \mathbf{\$}\mathbf{26}\mathbf{.}\mathbf{72}\end{array}$

For Product Line B

$\begin{array}{rcl}\mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{O}\mathit{v}\mathit{e}\mathit{r}\mathit{h}\mathit{e}\mathit{a}\mathit{d}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{f}\mathit{o}\mathit{r}\mathbf{}\mathit{P}\mathit{r}\mathit{o}\mathit{d}\mathit{u}\mathit{c}\mathit{t}\mathbf{}\mathit{B}& \mathbf{=}& \mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{O}\mathit{v}\mathit{e}\mathit{r}\mathit{h}\mathit{e}\mathit{a}\mathit{d}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathbf{\times }\frac{\mathbf{Total}\mathbf{}\mathbf{DL}\mathbf{}\mathbf{hour}\mathbf{}\mathbf{for}\mathbf{}\mathbf{product}\mathbf{}\mathit{B}}{\mathbf{Total}\mathbf{}\mathbf{hour}\mathbf{}\mathbf{for}\mathbf{}\mathbf{both}\mathbf{}\mathbf{product}\mathbf{}\mathbf{line}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{249}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{500}}{\mathbf{2}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{500}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{249}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{0}\mathbf{.}\mathbf{2}\\ & \mathbf{=}& \mathbf{\$}\mathbf{49}\mathbf{,}\mathbf{800}\end{array}$

$\begin{array}{rcl}\mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{P}\mathit{r}\mathit{o}\mathit{d}\mathit{u}\mathit{c}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}& \mathbf{=}& \mathit{D}\mathit{i}\mathit{r}\mathit{e}\mathit{c}\mathit{t}\mathbf{}\mathit{M}\mathit{a}\mathit{t}\mathit{e}\mathit{r}\mathit{i}\mathit{a}\mathit{l}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathbf{+}\mathit{D}\mathit{i}\mathit{r}\mathit{e}\mathit{c}\mathit{t}\mathbf{}\mathit{L}\mathit{a}\mathit{b}\mathit{o}\mathit{r}\mathbf{}\mathit{c}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathbf{+}\mathit{O}\mathit{v}\mathit{e}\mathit{r}\mathit{h}\mathit{e}\mathit{a}\mathit{d}\mathbf{}\mathit{c}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\\ & \mathbf{=}& \mathbf{\$}\mathbf{3}\mathbf{+}\mathbf{(}\mathbf{\$}\mathbf{24}\mathbf{\times }\mathbf{0}\mathbf{.}\mathbf{25}\mathbf{)}\mathbf{+}\frac{\mathbf{\$}\mathbf{49}\mathbf{,}\mathbf{800}}{\mathbf{2}\mathbf{,}\mathbf{000}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{3}\mathbf{+}\mathbf{\$}\mathbf{6}\mathbf{+}\mathbf{\$}\mathbf{24}\mathbf{.}\mathbf{9}\\ & \mathbf{=}& \mathbf{\$}\mathbf{33}\mathbf{.}\mathbf{9}\end{array}$

Profit or loss per unit

$\begin{array}{rcl}\mathit{P}\mathit{r}\mathit{o}\mathit{f}\mathit{i}\mathit{t}\mathbf{/}\mathit{L}\mathit{o}\mathit{s}\mathit{s}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathbf{}\mathit{f}\mathit{o}\mathit{r}\mathbf{}\mathit{p}\mathit{r}\mathit{o}\mathit{d}\mathit{u}\mathit{c}\mathit{t}\mathbf{}\mathit{A}& \mathbf{=}& \mathit{M}\mathit{a}\mathit{r}\mathit{k}\mathit{e}\mathit{t}\mathbf{}\mathit{P}\mathit{r}\mathit{i}\mathit{c}\mathit{e}\mathbf{}\mathit{P}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathbf{-}\mathit{P}\mathit{r}\mathit{o}\mathit{d}\mathit{u}\mathit{c}\mathit{t}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{P}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\\ & \mathbf{=}& \mathbf{\$}\mathbf{20}\mathbf{-}\mathbf{\$}\mathbf{26}\mathbf{.}\mathbf{72}\\ & \mathbf{=}& \mathbf{-}\mathbf{\$}\mathbf{6}\mathbf{.}\mathbf{72}\end{array}$

$\begin{array}{rcl}\mathit{P}\mathit{r}\mathit{o}\mathit{f}\mathit{i}\mathit{t}\mathbf{/}\mathit{L}\mathit{o}\mathit{s}\mathit{s}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathbf{}\mathit{f}\mathit{o}\mathit{r}\mathbf{}\mathit{p}\mathit{r}\mathit{o}\mathit{d}\mathit{u}\mathit{c}\mathit{t}\mathbf{}\mathit{B}& \mathbf{=}& \mathit{M}\mathit{a}\mathit{r}\mathit{k}\mathit{e}\mathit{t}\mathbf{}\mathit{P}\mathit{r}\mathit{i}\mathit{c}\mathit{e}\mathbf{}\mathit{P}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathbf{-}\mathit{P}\mathit{r}\mathit{o}\mathit{d}\mathit{u}\mathit{c}\mathit{t}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{P}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\\ & \mathbf{=}& \mathbf{\$}\mathbf{60}\mathbf{-}\mathbf{\$}\mathbf{33}\mathbf{.}\mathbf{9}\\ & \mathbf{=}& \mathbf{\$}\mathbf{26}\mathbf{.}\mathbf{1}\end{array}$

Cost per unit under ABC

Cost per unit for product A using ABC

$\begin{array}{rcl}\mathit{M}\mathit{a}\mathit{c}\mathit{h}\mathit{i}\mathit{n}\mathit{e}\mathbf{}\mathit{S}\mathit{e}\mathit{t}\mathit{u}\mathit{p}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}& \mathbf{=}& \mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{S}\mathit{e}\mathit{t}\mathit{u}\mathit{p}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathbf{\times }\frac{\mathbf{N}\mathbf{u}\mathbf{m}\mathbf{b}\mathbf{e}\mathbf{r}\mathbf{}\mathbf{o}\mathbf{f}\mathbf{}\mathbf{s}\mathbf{e}\mathbf{t}\mathbf{u}\mathbf{p}\mathbf{s}\mathbf{}\mathbf{b}\mathbf{y}\mathbf{}\mathbf{A}}{\mathbf{T}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{N}\mathbf{o}\mathbf{.}\mathbf{}\mathbf{o}\mathbf{f}\mathbf{}\mathbf{S}\mathbf{e}\mathbf{t}\mathbf{u}\mathbf{p}\mathbf{s}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{121}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{10}}{\mathbf{10}\mathbf{+}\mathbf{12}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{55}\mathbf{,}\mathbf{000}\end{array}$

$\begin{array}{rcl}\mathit{M}\mathit{a}\mathit{t}\mathit{e}\mathit{r}\mathit{i}\mathit{a}\mathit{l}\mathbf{}\mathit{H}\mathit{a}\mathit{n}\mathit{d}\mathit{l}\mathit{i}\mathit{n}\mathit{g}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}& \mathbf{=}& \mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{M}\mathit{a}\mathit{t}\mathit{e}\mathit{r}\mathit{i}\mathit{a}\mathit{l}\mathbf{}\mathit{H}\mathit{a}\mathit{n}\mathit{d}\mathit{l}\mathit{i}\mathit{n}\mathit{g}\mathbf{}\mathit{c}\mathit{o}\mathit{s}\mathit{t}\mathbf{\times }\frac{\mathbf{N}\mathbf{u}\mathbf{m}\mathbf{b}\mathbf{e}\mathbf{r}\mathbf{}\mathbf{o}\mathbf{f}\mathbf{}\mathbf{p}\mathbf{a}\mathbf{r}\mathbf{t}\mathbf{s}\mathbf{}\mathbf{r}\mathbf{e}\mathbf{q}\mathbf{u}\mathbf{i}\mathbf{r}\mathbf{e}\mathbf{d}\mathbf{}\mathbf{b}\mathbf{y}\mathbf{}\mathbf{A}}{\mathbf{T}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{N}\mathbf{o}\mathbf{.}\mathbf{}\mathbf{p}\mathbf{a}\mathbf{r}\mathbf{t}\mathbf{s}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{48}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{1}\mathbf{\times }\mathbf{10}\mathbf{,}\mathbf{000}}{\mathbf{(}\mathbf{1}\mathbf{\times }\mathbf{10}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{3}\mathbf{\times }\mathbf{2}\mathbf{,}\mathbf{000}\mathbf{)}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{48}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{10}\mathbf{,}\mathbf{000}}{\mathbf{16}\mathbf{,}\mathbf{000}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{30}\mathbf{,}\mathbf{000}\end{array}$

$\begin{array}{rcl}\mathit{Q}\mathit{C}\mathbf{}\mathit{I}\mathit{n}\mathit{s}\mathit{p}\mathit{e}\mathit{c}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}& \mathbf{=}& \mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{Q}\mathit{C}\mathbf{}\mathit{I}\mathit{n}\mathit{s}\mathit{p}\mathit{e}\mathit{c}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathbf{\times }\frac{\mathbf{N}\mathbf{u}\mathbf{m}\mathbf{b}\mathbf{e}\mathbf{r}\mathbf{}\mathbf{o}\mathbf{f}\mathbf{}\mathbf{i}\mathbf{n}\mathbf{s}\mathbf{p}\mathbf{e}\mathbf{c}\mathbf{t}\mathbf{i}\mathbf{o}\mathbf{n}\mathbf{}\mathbf{h}\mathbf{o}\mathbf{u}\mathbf{r}\mathbf{}\mathbf{r}\mathbf{e}\mathbf{q}\mathbf{u}\mathbf{i}\mathbf{r}\mathbf{e}\mathbf{d}\mathbf{}\mathbf{b}\mathbf{y}\mathbf{}\mathbf{A}}{\mathbf{T}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{I}\mathbf{n}\mathbf{s}\mathbf{p}\mathbf{e}\mathbf{c}\mathbf{t}\mathbf{i}\mathbf{o}\mathbf{n}\mathbf{}\mathbf{H}\mathbf{o}\mathbf{u}\mathbf{r}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{80}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{40}}{\mathbf{(}\mathbf{40}\mathbf{+}\mathbf{210}\mathbf{)}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{80}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{40}}{\mathbf{250}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{12}\mathbf{,}\mathbf{800}\end{array}$

$\begin{array}{rcl}\mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{P}\mathit{r}\mathit{o}\mathit{d}\mathit{u}\mathit{c}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{}\mathit{c}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}& \mathbf{=}& \mathit{D}\mathit{i}\mathit{r}\mathit{e}\mathit{c}\mathit{t}\mathbf{}\mathit{m}\mathit{a}\mathit{t}\mathit{e}\mathit{r}\mathit{i}\mathit{a}\mathit{l}\mathbf{}\mathit{c}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathbf{+}\mathit{D}\mathit{i}\mathit{r}\mathit{e}\mathit{c}\mathit{t}\mathbf{}\mathit{L}\mathit{a}\mathit{b}\mathit{o}\mathit{r}\mathbf{}\mathit{c}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathbf{+}\mathit{O}\mathit{n}\mathit{e}\mathit{r}\mathit{h}\mathit{e}\mathit{a}\mathit{d}\mathbf{}\mathit{c}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\\ & \mathbf{=}& \mathbf{\$}\mathbf{2}\mathbf{+}\mathbf{(}\mathbf{\$}\mathbf{24}\mathbf{\times }\mathbf{0}\mathbf{.}\mathbf{2}\mathbf{)}\mathbf{+}\frac{\mathbf{\$}\mathbf{55}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{30}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{12}\mathbf{,}\mathbf{800}}{\mathbf{10}\mathbf{,}\mathbf{000}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{2}\mathbf{+}\mathbf{\$}\mathbf{4}\mathbf{.}\mathbf{8}\mathbf{+}\mathbf{\$}\mathbf{9}\mathbf{.}\mathbf{78}\\ & \mathbf{=}& \mathbf{\$}\mathbf{16}\mathbf{.}\mathbf{58}\end{array}$

Cost per unit for product B using ABC

$\begin{array}{rcl}\mathit{M}\mathit{a}\mathit{c}\mathit{h}\mathit{i}\mathit{n}\mathit{e}\mathbf{}\mathit{S}\mathit{e}\mathit{t}\mathit{u}\mathit{p}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}& \mathbf{=}& \mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{S}\mathit{e}\mathit{t}\mathit{u}\mathit{p}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathbf{\times }\frac{\mathbf{Number}\mathbf{}\mathbf{of}\mathbf{}\mathbf{setups}\mathbf{}\mathbf{by}\mathbf{}\mathit{B}}{\mathbf{Total}\mathbf{}\mathbf{No}\mathbf{.}\mathbf{}\mathbf{of}\mathbf{}\mathbf{Setups}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{121}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{12}}{\mathbf{10}\mathbf{+}\mathbf{12}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{66}\mathbf{,}\mathbf{000}\end{array}$

$\begin{array}{rcl}\mathit{M}\mathit{a}\mathit{t}\mathit{e}\mathit{r}\mathit{i}\mathit{a}\mathit{l}\mathbf{}\mathit{H}\mathit{a}\mathit{n}\mathit{d}\mathit{l}\mathit{i}\mathit{n}\mathit{g}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}& \mathbf{=}& \mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{M}\mathit{a}\mathit{t}\mathit{e}\mathit{r}\mathit{i}\mathit{a}\mathit{l}\mathbf{}\mathit{H}\mathit{a}\mathit{n}\mathit{d}\mathit{l}\mathit{i}\mathit{n}\mathit{g}\mathbf{}\mathit{c}\mathit{o}\mathit{s}\mathit{t}\mathbf{\times }\frac{\mathbf{Number}\mathbf{}\mathbf{of}\mathbf{}\mathbf{parts}\mathbf{}\mathbf{required}\mathbf{}\mathbf{by}\mathbf{}\mathbf{A}}{\mathbf{Total}\mathbf{}\mathbf{No}\mathbf{.}\mathbf{}\mathbf{parts}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{48}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{3}\mathbf{\times }\mathbf{2}\mathbf{,}\mathbf{000}}{\mathbf{(}\mathbf{1}\mathbf{\times }\mathbf{10}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{3}\mathbf{\times }\mathbf{2}\mathbf{,}\mathbf{000}\mathbf{)}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{48}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{6}\mathbf{,}\mathbf{000}}{\mathbf{16}\mathbf{,}\mathbf{000}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{18}\mathbf{,}\mathbf{000}\end{array}$

$\begin{array}{rcl}\mathit{Q}\mathit{C}\mathbf{}\mathit{I}\mathit{n}\mathit{s}\mathit{p}\mathit{e}\mathit{c}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}& \mathbf{=}& \mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{Q}\mathit{C}\mathbf{}\mathit{I}\mathit{n}\mathit{s}\mathit{p}\mathit{e}\mathit{c}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathbf{\times }\frac{\mathbf{Number}\mathbf{}\mathbf{of}\mathbf{}\mathbf{inspection}\mathbf{}\mathbf{hour}\mathbf{}\mathbf{required}\mathbf{}\mathbf{by}\mathbf{}\mathbf{B}}{\mathbf{Total}\mathbf{}\mathbf{Inspection}\mathbf{}\mathbf{Hour}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{80}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{210}}{\mathbf{(}\mathbf{40}\mathbf{+}\mathbf{210}\mathbf{)}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{80}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{210}}{\mathbf{250}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{67}\mathbf{,}\mathbf{200}\end{array}$

$\begin{array}{rcl}\mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{P}\mathit{r}\mathit{o}\mathit{d}\mathit{u}\mathit{c}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{}\mathit{c}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}& \mathbf{=}& \mathit{D}\mathit{i}\mathit{r}\mathit{e}\mathit{c}\mathit{t}\mathbf{}\mathit{m}\mathit{a}\mathit{t}\mathit{e}\mathit{r}\mathit{i}\mathit{a}\mathit{l}\mathbf{}\mathit{c}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathbf{+}\mathit{D}\mathit{i}\mathit{r}\mathit{e}\mathit{c}\mathit{t}\mathbf{}\mathit{L}\mathit{a}\mathit{b}\mathit{o}\mathit{r}\mathbf{}\mathit{c}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathbf{+}\mathit{O}\mathit{n}\mathit{e}\mathit{r}\mathit{h}\mathit{e}\mathit{a}\mathit{d}\mathbf{}\mathit{c}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\\ & \mathbf{=}& \mathbf{\$}\mathbf{3}\mathbf{+}\mathbf{(}\mathbf{\$}\mathbf{24}\mathbf{\times }\mathbf{0}\mathbf{.}\mathbf{25}\mathbf{)}\mathbf{+}\frac{\mathbf{\$}\mathbf{66}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{18}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{67}\mathbf{,}\mathbf{200}}{\mathbf{2}\mathbf{,}\mathbf{000}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{3}\mathbf{+}\mathbf{\$}\mathbf{6}\mathbf{+}\mathbf{\$}\mathbf{75}\mathbf{.}\mathbf{6}\\ & \mathbf{=}& \mathbf{\$}\mathbf{84}\mathbf{.}\mathbf{6}\end{array}$

Profit or loss per unit under ABC

$\begin{array}{rcl}\mathit{P}\mathit{r}\mathit{o}\mathit{f}\mathit{i}\mathit{t}\mathbf{/}\mathit{L}\mathit{o}\mathit{s}\mathit{s}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathbf{}\mathit{f}\mathit{o}\mathit{r}\mathbf{}\mathit{p}\mathit{r}\mathit{o}\mathit{d}\mathit{u}\mathit{c}\mathit{t}\mathbf{}\mathit{A}& \mathbf{=}& \mathit{M}\mathit{a}\mathit{r}\mathit{k}\mathit{e}\mathit{t}\mathbf{}\mathit{P}\mathit{r}\mathit{i}\mathit{c}\mathit{e}\mathbf{}\mathit{P}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathbf{-}\mathit{P}\mathit{r}\mathit{o}\mathit{d}\mathit{u}\mathit{c}\mathit{t}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{P}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\\ & \mathbf{=}& \mathbf{\$}\mathbf{20}\mathbf{-}\mathbf{\$}\mathbf{16}\mathbf{.}\mathbf{58}\\ & \mathbf{=}& \mathbf{\$}\mathbf{3}\mathbf{.}\mathbf{42}\end{array}$

$\begin{array}{rcl}\mathit{P}\mathit{r}\mathit{o}\mathit{f}\mathit{i}\mathit{t}\mathbf{/}\mathit{L}\mathit{o}\mathit{s}\mathit{s}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathbf{}\mathit{f}\mathit{o}\mathit{r}\mathbf{}\mathit{p}\mathit{r}\mathit{o}\mathit{d}\mathit{u}\mathit{c}\mathit{t}\mathbf{}\mathit{B}& \mathbf{=}& \mathit{M}\mathit{a}\mathit{r}\mathit{k}\mathit{e}\mathit{t}\mathbf{}\mathit{P}\mathit{r}\mathit{i}\mathit{c}\mathit{e}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathbf{-}\mathit{P}\mathit{r}\mathit{o}\mathit{d}\mathit{u}\mathit{c}\mathit{t}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{P}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\\ & \mathbf{=}& \mathbf{\$}\mathbf{60}\mathbf{-}\mathbf{\$}\mathbf{84}\mathbf{.}\mathbf{6}\\ & \mathbf{=}& \mathbf{-}\mathbf{\$}\mathbf{24}\mathbf{.}\mathbf{6}\end{array}$

Under both the strategy the net loss by both the products amounts to $15,000. So any strategy can be adopted but ABC strategy for allocating overhead would be most suitable as under this strategy the overhead cost has been allocated accurately as per the level of activity by both the product line.