Question

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

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 $ 62
Direct labor cost per unit 18 32
Sales price per unit 364 571
Expected production per month 640 units 370 units

Harbour has monthly overhead of $198,050, which is divided into the following cost pools:

Setup costs $ 80,510
Quality control 66,240
Maintenance 51,300
Total $ 198,050

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

Home Work Total
Number of setups 35 62 97
Number of inspections 330 360 690
Number of machine hours 1,400 1,300 2,700

Required:
1. Suppose Harbour uses a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount.)

Overhead Assigned

Home Model / ____

Work Model / ____

Total Overhead Cost / ____


2. Calculate the production cost per unit for each of Harbour’s products under a traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places.)

Unit Cost

Home / ____

Work / ____

3. Calculate Harbour’s gross margin per unit for each product under the traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places.)
Gross Margin

Home / ____

Work / ____

4. Select the appropriate cost driver (inspections, machine hours, setups) for each cost pool and calculate the activity rates if Harbour wanted to implement an ABC system.

Setup Costs / ____ / ____

Quality Control / ____ / ____

Maintenance / ____ / ____


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

Overhead assigned to home / Overhead Assigned to work

Setup Costs / ____ / ____

Quality Control / ____ / ____

Maintenance / ____ / ____

Total Overhead Cost / ____ / ____


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.)

Unit Cost

Home / ____

Work / ____

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.)

Gross Margin

Home / ____

Work / ____

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

Home / Work

Gross Margin (Traditional) / ____ / ____

Gross Margin (ABC) / ____ / ____

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Answer #1

1.

Overhead assigned
Home model ($198,050/2,700*1,400) $102,693
Work model ($198,050/2,700*1,300) 95,357
Total overhead costs $198,050

2.

Home Work
Direct material $39 $62
Direct labor 18 32
Applied overhead 160.46 (102,693/640) 257.72 (95,357/370)
Production cost per unit $217.46 $351.72

3.

Home Work
Sale price per unit $364 $571
Cost per unit $217.46 $351.72
Gross margin per unit $146.54 $219.28

4.

Activity cost Estimated overhead Cost driver Activity rate
Setup costs $80,510 97 $830 per setup
Quality control 66,240 690 96 per inspection
Maintenance 51,300 2,700 19 per machine hour

5.

Home Work
Setup costs 29,050 (35*$830) 51,460 (62*$830)
Quality control 31,680 (330*$96) 34,560 (360*$96)
Maintenance 26,600 (1,400*$19) 24,700 (1,300*$19)
Total overhead costs $87,330 $110,720

6.

Home Work
Direct material $39 $62
Direct labor 18 32
Applied overhead 136.45 (87,330/640) 299.24 (110,720/370)
Production cost per unit $193.45 $393.24

7.

Home Work
Sale price per unit $364 $571
Cost per unit $193.45 $393.24
Gross margin per unit $170.55 $177.76

8.

Home Work
Gross margin (Traditional) $146.54 $219.28
Gross margin (ABC) 170.55 177.76
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