Maxey & Sons manufactures two types of storage cabinetsType A and Type Band applies manufacturing overhead to all units at the rate of $160 per machine hour. Production information follows. Type A Type B Anticipated volume (units) 32,000 60,000 Direct-material cost per unit $ 48 $ 72 Direct-labor cost per unit 53 53 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 180 140 320 Machine hours 64,000 90,000 154,000 Outgoing shipments 200 150 350 The firms total overhead of $24,640,000 is subdivided as follows: manufacturing setups, $5,376,000; machine processing, $14,784,000; and product shipping, $4,480,000.

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 $485.00 and the marketing manager is contemplating a $50 discount to stimulate volume. Is this discount advisable?