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 $ 44 $ 63 20 32 365 572 660 units 440 units Harbour has monthly overhead of $197,765, which is divided into the following cost pools: Setup costs Quality control Maintenance Total $ 82,400 62,565 52,800 $ 197,765 The company has also compiled the following information about the chosen cost drivers: Number of setups Number of inspections Number of machine hours Home 38 320 1,200 Work 65 325 2,100 Total 103 645 3,300 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: $ 71,915 Work Model: $ 125,853 Total Overhead Cost $ 197,768

Answer 1

Requirement 1:

Amount of overhead assigned

Models	Overhead Applied
Home	$71,915
Work	$125,850
Total Overhead cost	$197,765

Working Notes:

Overhead applied

Home Model = $197,765 / 3,300 machine hours * 1,200 machine hours = $71,915

Work Model = $197,765 / 3,300 machine hours * 2,100 machine hours = $125,850

Requirement 2:

Particulars	Home	Work
Direct materials per unit	$44.00	$63.00
Direct labor cost per unit	$20.00	$32.00
Overhead cost per unit	$108.96	$286.02
Unit Cost	$172.96	$381.02

Working Notes:

Overhead cost per unit

Home = $71,915 / 660 units = $108.96

Work = $125,850 / 440 units = $286.02

Requirement 3:

Particulars	Home	Work
Sales price per unit	$365.00	$572.00
Less: Total Unit cost	$172.96	$381.02
Gross Margin per unit	$192.04	$190.98

Requirement 4:

Cost driver

Setup cost	Number of setups	$800 per setup
Quality Control	Number of inspections	$97 per inspection
Maintenance	Number of machine hours	$16 per machine hour

Working Notes:

Activity rate

Setup cost = $82,400 / 103 setups = $800 per setup

Quality control = $62,565 / 645 inspections = $97 per inspection

Maintenance = $52,800 / 3,300 machine hours = $16 per machine hour

Requirement 5:

Overheads assigned

Particulars	Overhead assigned to Home	Overhead assigned to Work
Setup Costs	$30,400	$52,000
Quality Control	$31,040	$31,525
Maintenance	$19,200	$33,600
Total Overhead cost	$80,640	$117,125

Working Notes:

Overhead cost assigned

Home:

Setup cost = 38 setups * $800 per setup = $30,400

Quality Control = 320 inspections * $97 per inspection = $31,040

Maintenance = 1,200 machine hours * $16 per machine hour = $19,200

Work

Setup cost = 65 setups * $800 per setup = $52,000

Quality Control = 325 inspections * $97 per inspection = $31,525

Maintenance = 2,100 machine hours * $16 per machine hour = $33,600

Requirement 6:

Particulars	Home	Work
Direct materials per unit	$44.00	$63.00
Direct labor cost per unit	$20.00	$32.00
Overhead cost per unit	$122.18	$266.19
Unit Cost	$186.18	$361.19

Working Notes:

Overhead cost per unit

Home = $80,640 / 660 units = $122.18 per unit

Work = $117,125 / 440 units = $266.19 per unit

Requirement 7:

Particulars	Home	Work
Sales price per unit	$365.00	$572.00
Less: Total Unit cost	$186.18	$361.19
Gross Margin per unit	$178.82	$210.81

Requirement 8:

Particulars	Home	Work
Gross Margin per unit (Traditional)	$192.04	$190.98
Gross Margin per unit (ABC)	$178.82	$210.81

All the best...