$10$

points

eBook Print Check $my$ work Check $My$ Work button $is$ now enabled Item $1$

Maxey & Sons manufactures two types $of$ storage cabinets$-$Type A and Type $B-$and applies manufacturing overhead $to$ all units $at$ the rate $of$ $$112$ per machine hour. Production information follows.

Descriptions Type A Type $B$

Anticipated volume $(units)22,40042,000$

Direct$-$material cost per unit $ $24$ $ $36$

Direct$-$labor cost per unit $2929$

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.

Descriptions Type A Type $B$ Total

Setups $13292224$

Machine hours $44,80063,000107,800$

Outgoing shipments $200150350$

The firm$s$ total overhead $of$ $$12,073,600is$ subdivided $as$ follows: manufacturing setups, $$2,634,240$; machine processing, $$7,244,160$; and product shipping, $$2,195,200.$

Required:

Compute the unit manufacturing cost $of$ Type A and Type $B$ storage cabinets $by$ using the company$s$ current overhead costing procedures.

Compute the unit manufacturing cost $of$ Type A and Type $B$ storage cabinets $by$ using activity$-$based costing.

$Is$ 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?

Assume that the current selling price $of$ a Type A storage cabinet $is$ $$332\mathrm{.}50$ and the marketing manager $is$ contemplating $a$ $$38$ discount $to$ stimulate volume. $Is$ this discount advisable?