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	$	44		$	71
Direct labor cost per unit		23			35
Sales price per unit		369			573
Expected production per month		740	units		410	units

    

Harbour has monthly overhead of $187,410, which is divided into the following cost pools:

Setup costs	$	86,110
Quality control		58,800
Maintenance		42,500
Total	$	187,410

        

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

	Home	Work	Total
Number of setups	38	71	109
Number of inspections	310	390	700
Number of machine hours	1,100	1,400	2,500

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.)

    
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.)

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.)

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

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

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.)

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.)

8. Compare the gross margin of each product under the traditional system and ABC. (Round your answers to 2 decimal places.)

Answer 1

Req 1.
Pre-determined OH rate:
Total Overheads			187410
Divide: Total MH			2500
OH rate per MH			74.964
Overheads assigned to product
			Home	Work	Total
MH used			1100	1400	2500
Oh rate			74.964	74.964	74.964
Overheads applied			82460.4	104949.6	187410
Req 2.
			Home	Work	Total
Number of units			740	410
Material cost			32560	29110	61670
			(740*44)	(410*71)
Labour cost			17020	14350	31370
			(740*23)	(410*35)
Overheads applied			82460.4	104949.6	187410
Total Manufacturing cost			132040.4	148409.6	280450
Divide: Units			740	410
Production cost per unit			178.43	361.97
Req 3.
Gross margin per unit
			Home	Work
Sales price per unit			369	573
Less;Production cost per unit			178.43	361.97
Gross margin per unit			190.57	211.03
Req 4.
Activity rates:
Activity		Driver	OH	Driver	Activity rate
Setup cost		Setups	86110	109	790
Quality control		Inspections	58800	700	84
Maintenance		MH	42500	2500	17
			187410
Req 5
Overheads assigned:
Activity		Rate	Home		Wrk
			Activity	OH	Activity	OH
Setup cost		790	38	30020	71	56090
Quality control		84	310	26040	390	32760
Maintenance		17	1100	18700	1400	23800
		Total Overheads		74760		112650
Req 6.
			Home	Work	Total
Number of units			740	410
Material cost			32560	29110	61670
			(740*44)	(410*71)
Labour cost			17020	14350	31370
			(740*23)	(410*35)
Overheads applied			74760	112650	187410
Total Manufacturing cost			124340	156110	280450
Divide: Units			740	410
Production cost per unit			168.03	380.76
Req 7.
Gross margin per unit
			Home	Work
Sales price per unit			369	573
Less;Production cost per unit			168.03	380.76
Gross margin per unit			200.97	192.24
Req 8.
Gross margin of Home product under ABC is higher:						10.4
Gross margin of Work product under Traditional s higher:						18.79