Maxey & Sons manufactures two types of storage cabinets-Type A and Type B-and applies manufacturing overhead to all units at the rate of $156 per machine hour. Production information follows. Anticipated volume (units) Direct-naterial cost per unit Direct-labor cost per unit Setups Machine hours Outgoing shipments Type A 176 Type A 31,200 62,400 200 46 51 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 B 58,500 Type B 136 87,750 150 69 51 Total 312 150, 150 350 The firm's total overhead of $23,423,400 is subdivided as follows: manufacturing setups, $5,110,560; machine processing. $14,054,040; and product shipping, $4,258,800. Required: 1. Compute the unit manufacturing cost of Type A and Type B storage cabinets by using the company's current overhead costing procedures. 2. Compute the unit manufacturing cost of Type A and Type B storage cabined by using activity-based costing. 3. Is the cost of the Type A storage cabinet overstated or understated (.e., distorted) by the 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 $475.00 and the marketing manager is contemplating a $49 discount to stimulate volume. Is this discount advisable?
Maxey & Sons manufactures two types of storage cabinets-Type A and Type B-and applies manufacturing overhead to all units at the rate of $156 per machine hour. Production information follows. Anticipated volume (units) Direct-naterial cost per unit Direct-labor cost per unit Setups Machine hours Outgoing shipments Type A 176 Type A 31,200 62,400 200 46 51 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 B 58,500 Type B 136 87,750 150 69 51 Total 312 150, 150 350 The firm's total overhead of $23,423,400 is subdivided as follows: manufacturing setups, $5,110,560; machine processing. $14,054,040; and product shipping, $4,258,800. Required: 1. Compute the unit manufacturing cost of Type A and Type B storage cabinets by using the company's current overhead costing procedures. 2. Compute the unit manufacturing cost of Type A and Type B storage cabined by using activity-based costing. 3. Is the cost of the Type A storage cabinet overstated or understated (.e., distorted) by the 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 $475.00 and the marketing manager is contemplating a $49 discount to stimulate volume. Is this discount advisable?
Chapter5: Process Costing
Section: Chapter Questions
Problem 1PB: The following product costs are available for Stellis Company on the production of erasers: direct...
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Maxey & Sons manufactures two types of storage cabinets-Type A and Type B-and applies manufacturing overhead to all units at
the rate of $156 per machine hour. Production information follows.
Anticipated volume (units)
Direct-material cost per unit
Direct-labor cost per unit
Setups
Machine hours
Outgoing shipments
Type A
31,200
Type A
176
62,400
200
46
51
Type B
58,500
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 B
136
87,750
150
$
69
51
Total
312
150, 150
350
The firm's total overhead of $23,423,400 is subdivided as follows: manufacturing setups, $5,110,560; machine processing.
$14,054,040; and product shipping, $4,258,800.
Required:
1. Compute the unit manufacturing cost of Type A and Type B storage cabinets by using the company's current overhead costing
procedures.
2. Compute the unit manufacturing cost of Type A and Type B storage cabined by using activity-based costing.
3. Is the cost of the Type A storage cabinet overstated or understated (.e., distorted) by the 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 $475.00 and the marketing manager is contemplating a $49
discount to stimulate volume. Is this discount advisable?
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