Question

Harbour Company makes two models of electronic tablets, the Home and the Work. Basic production information follows: Home Work $ 30 20 300 500 700 units 400 units Direct materials cost per unit Direct labor cost per unit Sales price per unit Expected production per month 30 Harbour has monthly overhead of $175,200, which is divided into the following cost pools: Setup costs Quality control Maintenance Total $ 68,800 58,400 48.000 $175,200 The company has also compiled the following information about the chosen cost drivers: Home Number of setups Number of inspections Number of machine hours Work Total 58 100 390730 1,300 3,000 340 1,700

Answer 1

		Home	Work
	Direct Material per unit	30	48
	Direct Labour per unit	20	30
	Sales Price	300	500
	Expected Production per month (in units)	700	400
	Monthly overhead of $175200
	Set up Cost	68800
	Quality control	58400
	Maintenance	48000
		175200
1	Overhead allocation (machine hours)
	Number of machine hours	1700	1300
	Set up Cost	38986.67	29813.33
	Quality control	33093.33	25306.67
	Maintenance	27200	20800
		99280	75920
2	Production Cost of Harbour's product under traditional costing system
	Traditional costing System
	Particulars	Home	Work
	Direct Material	21000	19200
	Direct Labour	14000	12000
	Mothly Overhead	99280	75920
	Total cost	134280	107120
	Total unit	700	400
	Cost per unit ( total cost/ unit)	191.83	267.80
3	Gross Margin under traditional costing system
	Particulars	Home	Work
	No of units	700	400
	Sales Price	300	500
	Sales	210000	200000
	Direct Material	21000	19200
	Direct Labour	14000	12000
	Mothly Overhead	99280	75920
	Gross Margin	75720	92880
	Gross Margin per unit	108.17	232.20
	( gross Margin/No of units Produced)
4	Selection of the appropriate cost drivers
	Set up Cost	Number of set ups
	Quality control	Number of inspection
	Maintenance	Number of machine hours
5	Assigning of overhead cost to each product based on ABC costing
	Particulars	Home	Work	Total
	Set up Cost    ( No of set ups)	28896	39904	68800
	Quality control	27200	31200	58400
	Maintenance	27200	20800	48000
	Total	83296	91904	175200
	Cost drivers	Home	Work	Total
	Number of set ups	42	58	100
	Number of inspection	340	390	730
	Number of machine hours	1700	1300	3000
6	Production Cost of Harbour's product under ABC Costing System
	Particulars	Home	Work
	No of units	700	400
	Sales Price	300	500
	Sales                            A	210000	200000
	Direct Material	21000	19200
	Direct Labour	14000	12000
	Overhead
	Set up cost	28896	39904
	Quality control	27200	31200
	Maintenance	27200	20800
	Total cost                     B	118296	123104
7	Calculation of Gross Margin per unit under ABC system
	Particulars	Home	Work
	Gross Margin (A-B)	91704	76896
	Gross Margin per unit	131.01	192.24
8	Comparison of Gross margin under both method
	Gross Margin per unit	Home	Work
	Traditional Costing	108.17	232.20
	ABC costing	131.01	192.24