Question

Harbour Company makes two models of electronic tablets, the Home and the Work Basic production information follows: 5 65 $44 20 Direct materials cost per unit Direct labor cost per unit Sales price per unit Expected production per month 367 583 790 units 500 units Harbour has monthly overhead of $191,680, which is divided into the following cost pools: Setup costs Quality control Maintenance $ 85,680 57.469 48,600 $191,680 Total The company has also compiled the following information about the chosen cost drivers: Number of setups Number of Inspections Number of machine hours 38 330 1.400 Work 64 320 1.300 Total 102 2000 2.700 Required: 1. Suppose Harbour uses a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line. (Do not round Intermediate calculations and round your final answers to the nearest whole dollar amount.) Overhead Assigned Home Model Work Model Total Overhead Cost

Answer 1

Req.1) on traditional costing system with machine
hours as the cost driver:
Total OH*MHs/Total Mhs
		Overhead assigned
Home Model	191680*1400/2700	99390
Work Model	191680*1300/2700	92290
total Overhead Cost		191680
	Overhead assigned	Per unit
Home Model	99390	125.81
Work Model	92290	184.58
Req.2) Production cost per unit:
	Home	Work
DM	44	65
DL	20	30
Overhead	125.81	184.58
Total unit cost	189.81	279.58
Req. 3) Gross margin per unit as per traditional method:
	Home	Work
Selling price per unit	367	583
Total cost per unit	189.81	279.58
Gross Profit	177.19	303.42
Req 4) Appropriate cost driver for each cost pool:
	Cost driver
Setup costs	Number of setups
Quality control	Number of Inspections
Maintenance	Number of machine hours
Req 5) Assigning overhead costs to each product:
	OH assigned to Home	OH assigned to Work	Total
Setup costs	85680*38/102=31920	85680*64/102=53760
Quality control	57400*330/700=27060	57400*370/700=30340
Maintenance	48600*1400/2700=25200	48600*1300/2700=23400
Total overhead costs	84180	107500	191680
Per unit	106.56	215
Req.6) Production cost per unit under ABC system:
	Home	Work
DM	44	65
DL	20	30
Overhead	106.56	215
Total unit cost	170.56	310
Req. 7) Gross margin per unit under ABC system:
	Home	Work
Selling price per unit	367	583
Total cost per unit	170.56	310
Gross Margin	196.44	273
Req. 8) Comparing the Gross Margin of each product:
	Home	Work
Gross Margin (Traditional)	177.19	303.42
Gross Margin (ABC system)	196.44	273