Question

Harbour Company makes two models of electronic tablets, the Home and the Work. Basic production information follows: Home $ 30 20 Work $ 48 30 Direct materials cost per unit Direct labor cost per unit Sales price per unit Expected production per month 300 500 700 units 400 units Harbour has monthly overhead of $175,200, which is divided into the following cost pools: Setup costs Quality control Maintenance Total S 68.800 58,400 49.000 $ 175,200 The company has also compiled the following information about the chosen cost drivers: Number of setups Number of inspections Number of machine hours Home 42 340 1,700 Work 58 390 1,300 Total 100 730 3,000 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.) Home Work Unit Cost

Answer 1

1.

Predetermined overhead rate = Estimated overhead cost / Estimated machine hours

Predetermined overhead rate = $175,200 / 3,000 = $58.4 per machine hour

	Overhead assigned
Home model	$99,280 (1,700*$58.4)
Work model	75,920 (1,300*$58.4)
Total overhead cost	$175,200

2.

	Home	Work
Direct materials	$30	$48
Direct labor	20	30
Overhead	141.83 (99,280/700)	189.8 (75,920/400)
Unit product cost	$191.83	$267.8

3.

	Home	Work
Sale price per unit	$300	$500
Cost per unit	(191.83)	(267.8)
Gross margin	$108.17	$232.2

4.

	Estimated overhead	Cost drivers	Activity rate
Setup cost	$68,800	100	$688 (68,800/100)
Quality control	58,400	730	80 (58,400/730)
Maintenance	48,000	3,000	16 (48,000/3,000)

5.

	Overhead assigned to Home	Overhead assigned to Work
Setup costs	$28,896 (42*$688)	$39,904 (58*$688)
Quality control	27,200 (340*$80)	31,200 (390*$80)
Maintenance	27,200 (1,700*$16)	20,800 (1,300*$16)
Total overhead cost	$83,296	$91,904

6.

	Home	Work
Direct materials	$30	$48
Direct labor	20	30
Overhead	119 (83,296/700)	229.76 (91,904/400)
Unit product cost	$169	$307.76

7.

	Home	Work
Sale price per unit	$300	$500
Cost per unit	(169)	(307.76)
Gross margin	$131	$192.24

8.

	Home	Work
Gross margin (Traditional)	$108.17	$232.2
Gross margin (ABC)	$131	$192.24