Wilmington Office Equipment Corporation manufactures two types of filing cabinetsDeluxe and Executiveand applies manufacturing overhead to all units at the rate of $132.00 per machine hour. Production information follows.

	Deluxe			Executive
Direct-material cost	$	34		$	51
Direct-labor cost		39			39
Budgeted volume (units)		26,400			49,500

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.

	Deluxe			Executive			Total
Setups		152			112			264
Machine hours		52,800			74,250			127,050
Outgoing shipments		200			150			350

The firms total overhead of $16,770,600 is subdivided as follows: manufacturing setups, $3,659,040; machine processing, $10,062,360; and product shipping, $3,049,200

Is the cost of the Deluxe filing cabinet overstated or understated (i.e., distorted) by the use of machine hours to allocate total manufacturing overhead to production? By how much? (Round your answer to 2 decimal places.)

4.	Calculate the aggregate amount by which the Deluxe cabinet line is undercosted by the companys current traditional overhead costing procedures. Calculate the aggregate amount by which the traditional system overcosts the Executive cabinet line. (Round your answers to the nearest whole dollar.)

5.

Assume that the current selling price of a Deluxe filing cabinet is $387 and the marketing manager is contemplating a $43 discount to stimulate volume. Is this discount advisable?

	Yes
	No