Harbour Company makes two models of electronic tablets, the Home and the Work. Basic production information follows: Home Work Direct materials cost per unit $ 36 $ 64 Direct labor cost per unit 22 38 Sales price per unit 365 579 Expected production per month 740 units 460 units Harbour has monthly overhead of $187,875, which is divided into the following cost pools: Setup costs $ 80,080 Quality control 61,595 Maintenance 46,200 Total $ 187,875 The company has also compiled the following information about the chosen cost drivers: Home Work Total Number of setups 41 63 104 Number of inspections 320 315 635 Number of machine hours 1,700 1,600 3,300 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.) Overhead Assigned Home Model: Work Model: Total Overhead Cost $0 2. Calculate the production cost per unit for each of Harbour’s products under a traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places.) Home Work Unit Cost 3. Calculate Harbour’s gross margin per unit for each product under the traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places.) Home Work Gross Margin
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Harbour Company makes two models of electronic tablets, the Home and the Work. Basic production information follows:
| Home | Work | |||||
| Direct materials cost per unit | $ | 36 | $ | 64 | ||
| Direct labor cost per unit | 22 | 38 | ||||
| Sales price per unit | 365 | 579 | ||||
| Expected production per month | 740 | units | 460 | units | ||
Harbour has monthly overhead of $187,875, which is divided into the following cost pools:
| Setup costs | $ | 80,080 |
| Quality control | 61,595 | |
| Maintenance | 46,200 | |
| Total | $ | 187,875 |
The company has also compiled the following information about the chosen cost drivers:
| Home | Work | Total | |
| Number of setups | 41 | 63 | 104 |
| Number of inspections | 320 | 315 | 635 |
| Number of machine hours | 1,700 | 1,600 | 3,300 |
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.)
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2. Calculate the production cost per unit for each of Harbour’s products under a traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places.)
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3. Calculate Harbour’s gross margin per unit for each product under the traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places.)
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4. Select the appropriate cost driver for each cost pool and calculate the activity rates if Harbour wanted to implement an ABC system.
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5. Assuming an ABC system, assign overhead costs to each product based on activity demands.
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6. Calculate the production cost per unit for each of Harbour’s products in an ABC system. (Round your intermediate calculations and final answers to 2 decimal places.)
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7. Calculate Harbour’s gross margin per unit for each product under an ABC system. (Round your intermediate calculations and final answers to 2 decimal places.)
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8. Compare the gross margin of each product under the traditional system and ABC. (Round your answers to 2 decimal places.)
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