Maxey & Sons manufactures two types of storage cabinets-Type A and Type B-and applies manufacturing overhead to all units at the rate of $120 per machine hour. Production information follows. Descriptions Anticipated volume (units) Direct-material cost per unit Direct-labor cost per unit Descriptions 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. Setups Machine hours Outgoing shipments Type A 24,000 $28 33 Type A 140 48,000 200 Type B 45,000 $ 42 33 Type B 100 67,500 150 Total 240 115,500 350 The firm's total overhead of $13,860,000 is subdivided as follows: manufacturing setups, $3,024,000; machine processing, $8,316,000; and product shipping, $2,520,000. 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 cabinets by using activity-based costing. 3. Is the cost of the Type A storage cabinet overstated or understated (i.e., distorted) by the use of machine hours to allocate total manufacturing overhead to production? By how much?
Maxey & Sons manufactures two types of storage cabinets-Type A and Type B-and applies manufacturing overhead to all units at the rate of $120 per machine hour. Production information follows. Descriptions Anticipated volume (units) Direct-material cost per unit Direct-labor cost per unit Descriptions 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. Setups Machine hours Outgoing shipments Type A 24,000 $28 33 Type A 140 48,000 200 Type B 45,000 $ 42 33 Type B 100 67,500 150 Total 240 115,500 350 The firm's total overhead of $13,860,000 is subdivided as follows: manufacturing setups, $3,024,000; machine processing, $8,316,000; and product shipping, $2,520,000. 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 cabinets by using activity-based costing. 3. Is the cost of the Type A storage cabinet overstated or understated (i.e., distorted) by the use of machine hours to allocate total manufacturing overhead to production? By how much?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Maxey & Sons manufactures two types of storage cabinets-Type A and Type B-and applies manufacturing overhead to all units at
the rate of $120 per machine hour. Production information follows.
Descriptions
Anticipated volume (units)
Direct-material cost per unit
Direct-labor cost per unit
Descriptions
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.
Setups
Machine hours
Outgoing shipments
Type A
140
48,000
200
Required 1 Required 2 Required 3
Type A
24,000
$ 28
33
The firm's total overhead of $13,860,000 is subdivided as follows: manufacturing setups, $3,024,000; machine processing,
$8,316,000; and product shipping, $2,520,000.
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 cabinets by using activity-based costing.
3. Is the cost of the Type A storage cabinet overstated or understated (i.e., distorted) by the use of machine hours to allocate total
manufacturing overhead to production? By how much?
Unit manufacturing costs
4. Assume that the current selling price of a Type A storage cabinet is $360.00 and the marketing manager is contemplating a $40
discount to stimulate volume. Is this discount advisable?
$
Type B
100
67,500
150
Complete this question by entering your answers in the tabs below.
Type B
45,000
$ 42
33
Answer is complete but not entirely correct.
Type A
341.50 x $
<
Required 4
Compute the unit manufacturing cost of Type A and Type B storage cabinets by using activity-based costing.
Note: Round activity based application rates, overhead application and the final answers to 2 decimal places.
Total
240
115,500
350
Type B
169.00
Required 1
Required 3
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