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. Type A Type BAnticipated volume (units) 24,000 45,000 Direct-material cost per unit $ 28 $ 42 Direct-labor cost per unit 33 33 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 A Type B TotalSetups 140 100 240 Machine hours 48,000 67,500 115,500 Outgoing shipments 200 150 350 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. the unit manufacturing cost of Type A is 301 and Type B is 255 storage cabinets by using the company’s current overhead costing procedures. what is the unit manufacturing cost of Type A and Type B storage cabinets by using activity-based costing? 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?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?
Maxey & Sons manufactures two types of storage cabinets—Type A and Type B—and applies manufacturing
Type A Type B
Anticipated volume (units) 24,000 45,000
Direct-material cost per unit $ 28 $ 42
Direct-labor cost per unit 33 33
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 A Type B Total
Setups 140 100 240
Machine hours 48,000 67,500 115,500
Outgoing shipments 200 150 350
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. the unit
what is the unit manufacturing cost of Type A and Type B storage cabinets by using activity-based costing?
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?
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?
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