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

	Type A			Type B
Anticipated volume (units)		22,400			42,000
Direct-material cost per unit	$	24		$	36
Direct-labor cost per unit		29			29

The controller, who is studying the use of activity-based costing, has determined that the firms 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		132			92			224
Machine hours		44,800			63,000			107,800
Outgoing shipments		200			150			350

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

Required:

1. Compute the unit manufacturing cost of Type A and Type B storage cabinets by using the companys 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?

4. Assume that the current selling price of a Type A storage cabinet is $332.50 and the marketing manager is contemplating a $38 discount to stimulate volume. Is this discount advisable?

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

	Type A	Type B
Unit manufacturing costs

Compute the unit manufacturing cost of Type A and Type B storage cabinets by using activity-based costing. (Round activity based application rates, overhead application and the final answers to 2 decimal places.)

	Type A	Type B
Unit manufacturing costs

• 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? (Do not round intermediate calculations. Round activity based application rates, overhead application and the final answers to 2 decimal places.)

  Type A store cabinet line is

• Assume that the current selling price of a Type A storage cabinet is $332.50 and the marketing manager is contemplating a $38 discount to stimulate volume. Is this discount advisable?

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