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	$	36		$	71
Direct labor cost per unit		25			31
Sales price per unit		360			575
Expected production per month		680	units		390	units

Harbour has monthly overhead of $199,680, which is divided into the following cost pools:

Setup costs	$	81,810
Quality control		68,870
Maintenance		49,000
Total	$	199,680

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

	Home	Work	Total
Number of setups	37	64	101
Number of inspections	340	370	710
Number of machine hours	1,400	2,100	3,500

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.)

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

	Home			Work
Direct materials cost per unit	$	36		$	71
Direct labor cost per unit		25			31
Sales price per unit		360			575
Expected production per month		680	units		390	units

Harbour has monthly overhead of $199,680, which is divided into the following cost pools:

Setup costs	$	81,810
Quality control		68,870
Maintenance		49,000
Total	$	199,680

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

	Home	Work	Total
Number of setups	37	64	101
Number of inspections	340	370	710
Number of machine hours	1,400	2,100	3,500

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.)

HOme: $70,870

WOrk: $119,805

Total Overhead Cost: $199,675

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

Work:

Home:

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:

Work:

Home:

4. Select the appropriate cost driver for each cost pool and calculate the activity rates if Harbour wanted to implement an ABC system.

Setup Costs:

Quality Control:

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

HOME WORK

Setup Costs:

Quality Control:

MAintance:

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):

Answer 1

Solution 1:

Overhead Assigned (Traditional Costing)
Home model	$79,872
Work model	$119,808
Total overhead costs	$199,680

Solution 2:

Computation of product cost per unit (Traditional)
Particulars	Home	Work
Direct material cost per unit	$36.00	$71.00
Direct labor cost per unit	$25.00	$31.00
Overhead cost per unit Home - $79,872 / 680 Work - $119,808 / 390	$117.46	$307.20
Production cost per unit	$178.46	$409.20

Solution 3:

Computation of Gross Margin per unit (Traditional)
Particulars	Home	Work
Selling price per unit	$360.00	$575.00
Production cost per unit	$178.46	$409.20
Gross Margin per unit	$181.54	$165.80

Solution 4 & 5:

Computation of activity rate and Allocation of overhead to Products - ABC - Harbour
Activity	Estimated Overhead Cost	Activity Base	Usage of Activity Base	Activity Rate	Home		Work
					Usage	Allocated Costs	Usage	Allocated Costs
Setup costs	$81,810.00	Nos of setups	101	$810.00	37	$29,970	64	$51,840
Quality control	$68,870.00	Nos of inspections	710	$97.00	340	$32,980	370	$35,890
Maintenance	$49,000.00	Machine hours	3500	$14.00	1400	$19,600	2100	$29,400
Total	$199,680.00					$82,550.00		$117,130.00
Nos of units						680		390
Overhead cost per unit						$121.40		$300.33

Solution 6:

Computation of product cost per unit - Harbour Company - ABC
Particulars	Home	Work
Direct material cost per unit	$36.00	$71.00
Direct labor cost per unit	$25.00	$31.00
Overhead cost per unit	$121.40	$300.33
Production cost per unit	$182.40	$402.33

Solution 7:

Computation of Gross Margin per unit - ABC
Particulars	Home	Work
Selling price per unit	$360.00	$575.00
Production cost per unit	$182.40	$402.33
Gross Margin per unit	$177.60	$172.67

Solution 8:

Comparison of Gross Margin under traditional system and ABC
Particulars	Home	Work
Gross Margin ( Traditional)	$181.54	$165.80
Gross Margin (ABC)	$177.60	$172.67