Harbour Company makes two models of electronic tablets, the Home and the Work. Basic production information follows: Home Work Direct materials cost per unit $ 38 $ 63 Direct labor cost per unit 20 33 Sales price per unit 362 567 Expected production per month 790 units 330 units Harbour has monthly overhead of $171,525, which is divided into the following activity pools: Setup costs $ 72,800 Quality control 58,225 Maintenance 40,500 Total $ 171,525 The company also has compiled the following information about the chosen cost drivers: Home Work Total Number of setups 44 47 91 Number of inspections 350 335 685 Number of machine hours 1,700 1,000 2,700 Required: Suppose Harbour uses a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line. Calculate the production cost per unit for each of Harbour’s products under a traditional costing system. Calculate Harbour’s gross margin per unit for each product under the traditional costing system. Select the appropriate cost driver for each activity pool and calculate the activity rates if Harbour wanted to implement an ABC system. Assuming an ABC system, assign overhead costs to each product based on activity demands. Calculate the production cost per unit for each of Harbour’s products in an ABC system. Calculate Harbour’s gross margin per unit for each product under an ABC system. Compare the gross margin of each product under the traditional system and ABC.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Harbour Company makes two models of electronic tablets, the Home and the Work. Basic production information follows:
Home Work
Direct materials cost per unit $ 38 $ 63
Direct labor cost per unit 20 33
Sales price per unit 362 567
Expected production per month 790 units 330 units
Harbour has monthly
Setup costs $ 72,800
Quality control 58,225
Maintenance 40,500
Total $ 171,525
The company also has compiled the following information about the chosen cost drivers:
Home Work Total
Number of setups 44 47 91
Number of inspections 350 335 685
Number of machine hours 1,700 1,000 2,700
Required:
Suppose Harbour uses a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line.
Calculate the production cost per unit for each of Harbour’s products under a traditional costing system.
Calculate Harbour’s gross margin per unit for each product under the traditional costing system.
Select the appropriate cost driver for each activity pool and calculate the activity rates if Harbour wanted to implement an ABC system.
Assuming an ABC system, assign overhead costs to each product based on activity demands.
Calculate the production cost per unit for each of Harbour’s products in an ABC system.
Calculate Harbour’s gross margin per unit for each product under an ABC system.
Compare the gross margin of each product under the traditional system and ABC.
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
