Problem 5-49 Activity-Based Costing; Product Promotion (LO 5-1, 5-2,5-4, 5-5) Maxey & Sons manufactures two types of storage cabinets-Type A and Type B-and applies manufacturing overhead to all units at the rate of $144 per machine hour. Production information follows. Anticipated volume (units) Direct-material cost per unit Direct-labor cost per unit Type A 28,800 $ 40 45 Type B 54,000 $ 60 45 The controller, who is studying the use of activity-based costing, has determined that the firm's 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. Setups Machine hours Outgoing shipments Type A 164 57,600 200 Type B 124 81,000 150 Total 288 138,600 350 The firm's total overhead of $19,958,400 is subdivided as follows: manufacturing setups, $4,354,560; machine processing, $11,975,040; and product shipping, $3,628,800. Required: 1. Compute the unit manufacturing cost of Type A and Type B storage cabinets by using the company's 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 $440.00 and the marketing manager is contemplating a $46 discount to stimulate volume. Is this discount advisable? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Compute the unit manufacturing cost of Type A and Type B storage cabinets by using the company's current overhead costing procedures. Type A Type B Unit manufacturing costs Required 1 Required 2 Required 3 Required 4 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 Required 1 Required 2 Required 3 Required 4 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 Required 1 Required 2 Required 3 Required 4 Assume that the current selling price of a Type A storage cabinet is $440.00 and the marketing manager is contemplating a $46 discount to stimulate volume. Is this discount advisable? Yes IONo
