PA4-3 Selecting Cost Drivers, Assigning Costs Using Activity Rates [LO 4-1, 4-3, 4-4, 4-6 ]

Harbour Company makes two models of electronic tablets, the Home and the Work. Basic production information follows:

	Home			Work
Direct materials cost per unit	$	37		$	64
Direct labor cost per unit		25			40
Sales price per unit		354			574
Expected production per month		770	units		480	units

Harbour has monthly overhead of $199,330, which is divided into the following cost pools:

Setup costs	$	72,960
Quality control		61,770
Maintenance		64,600
Total	$	199,330

The company has also compiled the following information about the chosen cost drivers:

	Home	Work	Total
Number of setups	44	52	96
Number of inspections	310	400	710
Number of machine hours	1,100	2,300	3,400

Required: 1. Suppose Harbour uses a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount.)

2. Calculate the production cost per unit for each of Harbours products under a traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places.)

3. Calculate Harbours gross margin per unit for each product under the traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places.)

4. Select the appropriate cost driver for each cost pool and calculate the activity rates if Harbour wanted to implement an ABC system.

5. Assuming an ABC system, assign overhead costs to each product based on activity demands.

6. Calculate the production cost per unit for each of Harbours products in an ABC system. (Round your intermediate calculations and final answers to 2 decimal places.)

7. Calculate Harbours gross margin per unit for each product under an ABC system. (Round your intermediate calculations and final answers to 2 decimal places.)

8. Compare the gross margin of each product under the traditional system and ABC. (Round your answers to 2 decimal places.)