Question

Harbour Company makes two models of electronic tablets, the Home and the Work. Basic production information follows: Home Work $ 37 $ 71 15 363 578 620 units 470 units Direct materials cost per unit Direct labor cost per unit Sales price per unit Expected production per month 37 Harbour has monthly overhead of $186,180, which is divided into the following cost pools: Setup costs Quality control Maintenance Total $ 86,920 55,760 43,500 $186, 180 The company has also compiled the following information about the chosen cost drivers: Number of setups Number of inspections Number of machine hours Home 38 340 1,300 Work 68 340 1,600 Total 106 680 2,900

Answer 1

		1. Overhead assigned to each product	Home	Work	Total
	a	Total overhead			186180
	b	No. of Machine Hours	1300	1600	2900
	c	Cost per Machine hour (c=a/b)			64.20
	d	Overhead to be assigned (d= machine hour * cost per machine hour)	83460	102720	186180
	e	Expected production	620	470
	f	overhead cost per unit (f = d/e)	135	219
		2. production cost per unit
			Home	Work
	a	Direct Materials	37	71
	b	Direct labor	15	37
	c	Overheads	134.61	218.55
	d	production cost per unit (sum from a to c)	186.61	326.55
		3. Gross margin per unit
			Home	Work
	a	Sales price	363	578
	b	Production cost per unit	186.61	326.55
	c	production cost per unit (a - b)	176.39	251.45
		4. activity Rate as per ABC
			Activity cost	Cost drivers	Activity Rate per driver = (Activity cost /Cost drivers)
	a	Setup cost	86920	106	820
	b	Quality control	55760	680	82
	c	Maintenance	43500	2900	15
		5. overhead cost to each product
			Activity Rate per driver	no. of drivers	Total cost = a*b	expected production	cost per unit =c/d
		Home	a	b	c	d	e
		Setup cost	820	38	31160	620	50.26
		Quality control	82	340	27880	620	44.97
		Maintenance	15	1300	19500	620	31.45
		Work
		Setup cost	820	68	55760	470	118.64
		Quality control	82	340	27880	470	59.32
		Maintenance	15	1600	24000	470	51.06
		6. production cost per unit as per ABC
			Home	Work
	a	Direct Materials	37	71
	b	Direct labor	15	37
	c	Overheads
	d	Setup cost	50.26	118.64
	e	Quality control	44.97	59.32
	f	Maintenance	31.45	51.06
	g	production cost per unit (sum from a to f)	178.68	337.02
		7. Gross margin per unit as per ABC
			Home	Work
	a	Sales price	363	578
	b	Production cost per unit	178.68	337.02
	c	production cost per unit (a - b)	184.32	240.98
		8. comparison of Gross margin per unit
			Home	Work
	a	Traditional System	176.39	251.45
	b	ABC System	184.32	240.98
		increase/decrease	7.94	-10.47