Activity-Based Costing; Product Promotion
Maxey&Sons manufactures two types of storage cabinets-Type A and Type B-and applies manufacturing overhead to all units at the rate of $80 per machine hour. Production information follows.
Type A | Type B | |
Anticipated volume (units) | 8,000 | 15000 |
Direct-material cost per unit | $ 35 | $ 60 |
Direct-labor cost perunit | 20 | 20 |
The controller, who is studying the use of activity-based costing, has determined that the firm's overhead can be identified with three activities: manufacturing setups. machine processing. and product shipping. Data on the number of setups, machine hours, and outgoing shipments, which are the activities three respective cost drivers, follow.
Type A | Type B | Type C | |
Setups | 50 | 30 | 80 |
Machine hours | 16,000 | 22,500 | 38,500 |
Outgoing shipments | 100 | 75 | 175 |
The firm’s total overhead of $3.080.000 is subdivided as follows: manufacturing setups, $672,000; machine processing. $1,848,000; and product shipping, $560,000.
Required:
1. Compute tile unit manufacturing cost or Type A and Type B storage cabinets by using tile company’s current overhead costing procedures.
2. Compute the unit manufacturing cost of Type A and Type B storage cabinets by using activity based costing.
3. Is the cost of the Type A storage cabinet overstated or understated (i.e.. distorted) by tile use of machine hours to allocate total manufacturing overhead to production? By how much?
4. Assume that the current selling price of a Type A storage cabinet is $260 and the marketing manager is contemplating a $30 discount to stimulate volume. Is this discount advisable? Briefly discuss.
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.