Question
Harbour Company makes two models of electronic tablets, the Home and the Work. Basic production information...
Harbour Company makes two models of electronic tablets, the Home and the Work. Basic production information follows:
| Home | Work | |||||
| Direct materials cost per unit | $ | 39 | $ | 70 | ||
| Direct labor cost per unit | 24 | 37 | ||||
| Sales price per unit | 360 | 565 | ||||
| Expected production per month | 600 | units | 310 | units | ||
Harbour has monthly overhead of $186,045, which is divided into the following cost pools:
| Setup costs | $ | 78,120 |
| Quality control | 60,325 | |
| Maintenance | 47,600 | |
| Total | $ | 186,045 |
The company has also compiled the following information about the chosen cost drivers:
| Home | Work | Total | |
| Number of setups | 43 | 50 | 93 |
| Number of inspections | 310 | 325 | 635 |
| Number of machine hours | 1,600 | 1,800 | 3,400 |
Required:
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.)
Answers
5.
Cost Pool Cost Activity Rate Home Work Volume of Cost Driver Cost Assigned Volume of Cost Driver Cost Assigned Setup $78,120 $ 840 per setup 43 $ 36,120 50 $ 42,000 Quality Control 60,325 $ 95 per inspection 310 29,450 325 30,875 Maintenance 47,600 $14 per machine hour 1,600 22,400 1,800 25,200 Overhead Costs Assigned $ 87,970 $ 98,075 6.
Home Work Direct materials $ 39 $ 70 Direct labor 24 37 Overhead 146.62 316.37 Product cost per unit $ 209.62 $ 423.37 7.
Home Work Sales price per unit $ 360 $ 565 Product cost per unit 209.62 423.37 Gross margin per unit under an ABC system $ 150.38 $ 141.63
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