Maxey & Sons manufactures two types of storage cabinetsType A and Type Band applies manufacturing overhead to all units at the rate of $80 per machine hour. Production information follows.

	Type A			Type B
Anticipated volume (units)		8,000			15,000
Direct-material cost per unit	$	35		$	60
Direct-labor cost per unit		20			20

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		50			30			80
Machine hours		16,000			22,500			38,500
Outgoing shipments		100			75			175

The firms total overhead of $3,080,000 is subdivided as follows: manufacturing setups, $672,000; machine processing, $1,848,000; and product shipping, $560,000.

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 $260 and the marketing manager is contemplating a $30 discount to stimulate volume. Is this discount advisable?

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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. (Do not round intermediate calculations. Round your 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 your answer to 2 decimal places.)

Type A store cabinet line is

Assume that the current selling price of a Type A storage cabinet is $260 and the marketing manager is contemplating a $30 discount to stimulate volume. Is this discount advisable?

Yesradio button unchecked1 of 2

Noradio button unchecked2 of 2