Question

Harbour Company makes two models of electronic tablets, the Home and the Work. Basic production information follows: Direct materials cost per unit Direct labor cost per unit Sales price per unit Expected production per month Home Work $ 38 $ 66 25 30 571 700 units 450 units 370 Harbour has monthly overhead of $205,440, which is divided into the following cost pools: Setup costs Quality control Maintenance Total $ 89,040 58,800 57,600 $ 205,440 The company has also compiled the following information about the chosen cost drivers: Home Number of setups 35 Number of inspections 320 Number of machine hours 1,300 Work 71 380 1,900 Total 106 700 3,200 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:

Overhead Assigned (Traditional Costing)
Home model	$83,460
Work model	$121,980
Total overhead costs	$205,440

solution 2:

Computation of product cost per unit (Traditional)
Particulars	Home	Work
Direct material cost per unit	$38.00	$66.00
Direct labor cost per unit	$25.00	$30.00
Overhead cost per unit Home - $83,460 / 700 Work - 121,980 / 450	$119.23	$271.07
Production cost per unit	$182.23	$367.07

Solution 3:

Computation of Gross Margin per unit (Traditional)
Particulars	Home	Work
Selling price per unit	$370.00	$571.00
Production cost per unit	$182.23	$367.07
Gross Margin per unit	$187.77	$203.93

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	$89,040.00	Nos of setups	106	$840.00	35	$29,400	71	$59,640
Quality control	$58,800.00	Nos of inspections	700	$84.00	320	$26,880	380	$31,920
Maintenance	$57,600.00	Machine hours	3200	$18.00	1300	$23,400	1900	$34,200
Total	$205,440.00					$79,680.00		$125,760.00
Nos of units						700		450
Overhead cost per unit						$113.83		$279.47

Solution 6:

Computation of product cost per unit - Harbour Company - ABC
Particulars	Home	Work
Direct material cost per unit	$38.00	$66.00
Direct labor cost per unit	$25.00	$30.00
Overhead cost per unit	$113.83	$279.47
Production cost per unit	$176.83	$375.47

Solution 7:

Computation of Gross Margin per unit - ABC
Particulars	Home	Work
Selling price per unit	$370.00	$571.00
Production cost per unit	$176.83	$375.47
Gross Margin per unit	$193.17	$195.53

Solution 8:

Comparison of Gross Margin under traditional system and ABC
Particulars	Home	Work
Gross Margin ( Traditional)	$187.77	$203.93
Gross Margin (ABC)	$193.17	$195.53
Gross Margin per unit	-$5.40	$8.40