Traditional:

Activity Based:

Maxey & Sons manufactures two types of storage cabinets-Type A and Type Band applies manufacturing overhead to all units at the rate of $92 per machine hour. Production information follows. Type A 18,400 Type B 34,500 Anticipated volume (units) Direct-material cost per unit Direct-labor cost per unit $ 14 $ 21 19 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 112 36,800 200 Type B 72 51,750 150 Total 184 88,550 350 The firm's total overhead of $8,146,600 is subdivided as follows: manufacturing setups, $1,777,440; machine processing, $4,887,960; and product shipping, $1,481,200. Unit manufacturing costs Type A 2170$ Type 178 0 $ Type A 248.200$ Type 161.36 0 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 understated $574,080.00