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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-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?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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ces 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?
Transcribed Image Text:ces 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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