Maxey & Sons manufactures two types of storage cabinets$$Type A and Type B$$and applies manufacturing overhead to all units at the rate of $$108$ per machine hour. Production information follows.

Descriptions Type A Type B

Anticipated volume $($units$)21,60040,500$

Direct$-$material cost per unit $ $22$ $ $33$

Direct$-$labor cost per unit $2727$

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 $12888216$

Machine hours $43,20060,750103,950$

Outgoing shipments $200150350$

The firm$$s total overhead of $$11,226,600$ is subdivided as follows: manufacturing setups, $$2,449,440$; machine processing, $$6,735,960$; and product shipping, $$2,041,200.$

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 $$322\mathrm{.}50$ and the marketing manager is contemplating a $$37$ discount to stimulate volume. Is this discount advisable?