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

	Type A	Type B
Anticipated Volume (Units)	21,600	40,500
Direct Material Cost per Unit	$22	$33
Direct Labour Cost per Unit	$27	$27

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	128	88	216
Machine Hours	43,200	60,750	103,950
Outgoing Shipments	200	150	350

The firms 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: 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 $322.50 and the marketing manager is contemplating a $37 discount to stimulate volume. Is this discount advisable?