Question

Harbour Company makes two models of electronic tablets, the Home and the Work. Basic production information follows: Home Work $ 41 $ 63 31 350 568 670 units 310 units Direct materials cost per unit Direct labor cost per unit Sales price per unit Expected production per month 16 Harbour has monthly overhead of $174,710, which is divided into the following cost pools: Setup costs Quality control Maintenance Total $ 73,320 57,190 44,200 $174,710 The company has also compiled the following information about the chosen cost drivers: Home Work Total Number of setups 454994 Number of inspections 300 365 665 Number of machine hours 1,500 1,100 2,600 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

Answer 1

Solution 1-1:

Overhead Assigned (Traditional Costing)
Home model	$100,794
Work model	$73,916
Total overhead costs	$174,710

Solution 1-2:

Computation of product cost per unit (Traditional)
Particulars	Home	Work
Direct material cost per unit	$41.00	$63.00
Direct labor cost per unit	$16.00	$31.00
Overhead cost per unit Home - $100,794 / 670 Work - 73,916 / 310	$150.44	$238.44
Production cost per unit	$207.44	$332.44

Solution 1-3:

Computation of Gross Margin per unit (Traditional)
Particulars	Home	Work
Selling price per unit	$350.00	$568.00
Production cost per unit	$207.44	$332.44
Gross Margin per unit	$142.56	$235.56

Solution 1-4 & 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	$73,320.00	Nos of setups	94	$780.00	45	$35,100	49	$38,220
Quality control	$57,190.00	Nos of inspections	665	$86.00	300	$25,800	365	$31,390
Maintenance	$44,200.00	Machine hours	2600	$17.00	1500	$25,500	1100	$18,700
Total	$174,710.00					$86,400.00		$88,310.00
Nos of units						670		310
Overhead cost per unit						$128.96		$284.87

Solution 1-6:

Computation of product cost per unit - Harbour Company - ABC
Particulars	Home	Work
Direct material cost per unit	$41.00	$63.00
Direct labor cost per unit	$16.00	$31.00
Overhead cost per unit	$128.96	$284.87
Production cost per unit	$185.96	$378.87

Solution 1-7:

Computation of Gross Margin per unit - ABC
Particulars	Home	Work
Selling price per unit	$350.00	$568.00
Production cost per unit	$185.96	$378.87
Gross Margin per unit	$164.04	$189.13

Solution 1-8:

Comparison of Gross Margin under traditional system and ABC
Particulars	Home	Work
Gross Margin ( Traditional)	$142.56	$235.56
Gross Margin (ABC)	$164.04	$189.13
Gross Margin per unit	-$21.48	$46.43

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