Question

Harbour Company makes two models of electronic tablets, the Home and the Work. Basic production information follows:

	Home			Work
Direct materials cost per unit	$	39		$	70
Direct labor cost per unit		24			37
Sales price per unit		360			565
Expected production per month		600	units		310	units

Harbour has monthly overhead of $186,045, which is divided into the following cost pools:

Setup costs	$	78,120
Quality control		60,325
Maintenance		47,600
Total	$	186,045

The company has also compiled the following information about the chosen cost drivers:

	Home	Work	Total
Number of setups	43	50	93
Number of inspections	310	325	635
Number of machine hours	1,600	1,800	3,400

Required:

5. Assuming an ABC system, assign overhead costs to each product based on activity demands.

6. Calculate the production cost per unit for each of Harbour’s products in an ABC system. (Round your intermediate calculations and final answers to 2 decimal places.)

7. Calculate Harbour’s gross margin per unit for each product under an ABC system. (Round your intermediate calculations and final answers to 2 decimal places.)

8. Compare the gross margin of each product under the traditional system and ABC. (Round your answers to 2 decimal places.)

Answer 1

5.

Cost Pool	Cost	Activity Rate	Home		Work
			Volume of Cost Driver	Cost Assigned	Volume of Cost Driver	Cost Assigned
Setup	$78,120	$ 840 per setup	43	$ 36,120	50	$ 42,000
Quality Control	60,325	$ 95 per inspection	310	29,450	325	30,875
Maintenance	47,600	$14 per machine hour	1,600	22,400	1,800	25,200
Overhead Costs Assigned				$ 87,970		$ 98,075

6.

	Home	Work
Direct materials	$ 39	$ 70
Direct labor	24	37
Overhead	146.62	316.37
Product cost per unit	$ 209.62	$ 423.37

7.

	Home	Work
Sales price per unit	$ 360	$ 565
Product cost per unit	209.62	423.37
Gross margin per unit under an ABC system	$ 150.38	$ 141.63