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Maxey & Sons manufactures two types of storage cabinets-Type A and Type B-and applies manufacturing overhead to all units at the rate of $80 per machine hour. Production information follows. Descriptions Anticipated volume (units) Direct-material cost per unit Direct-labor cost per unit Type A 8,000 $ 35 Type B 15,000 20 $ 60 20 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. Descriptions Setups Machine hours Outgoing shipments Type A Type B Total 50 16,000 100 30 22,500 75 80 38,500 175 The firm's total overhead of $3,080,000 is subdivided as follows: manufacturing setups, $672,000; machine processing, $1,848,000; and product shipping, $560,000. 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.

Maxey & Sons manufactures two types of storage cabinets-Type A and Type B-and applies manufacturing overhead to all units at the rate of $80 per machine hour. Production information follows. Descriptions Anticipated volume (units) Direct-material cost per unit Direct-labor cost per unit Type A 8,000 $ 35 Type B 15,000 20 $ 60 20 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. Descriptions Setups Machine hours Outgoing shipments Type A Type B Total 50 16,000 100 30 22,500 75 80 38,500 175 The firm's total overhead of $3,080,000 is subdivided as follows: manufacturing setups, $672,000; machine processing, $1,848,000; and product shipping, $560,000. 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.

Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter6: Process Costing
Section: Chapter Questions
Problem 45E: Cassien Inc. manufactures products that pass through two or more processes. During June, equivalent...
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Maxey & Sons manufactures two types of storage cabinets-Type A and Type B-and applies manufacturing overhead to all units at the rate of $80 per machine hour. Production information follows. Descriptions Anticipated volume (units) Direct-material cost per unit Direct-labor cost per unit Type A 8,000 $ 35 20 Type B 15,000 $ 60 20 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. Descriptions Setups Machine hours Outgoing shipments Type A Type B Total 50 30 80 16,000 100 22,500 38,500 75 175 The firm's total overhead of $3,080,000 is subdivided as follows: manufacturing setups, $672,000; machine processing, $1,848,000; and product shipping, $560,000. 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 $260 and the marketing manager is contemplating a $30 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 < Prev 2 of 2 Next
Transcribed Image Text:Maxey & Sons manufactures two types of storage cabinets-Type A and Type B-and applies manufacturing overhead to all units at the rate of $80 per machine hour. Production information follows. Descriptions Anticipated volume (units) Direct-material cost per unit Direct-labor cost per unit Type A 8,000 $ 35 20 Type B 15,000 $ 60 20 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. Descriptions Setups Machine hours Outgoing shipments Type A Type B Total 50 30 80 16,000 100 22,500 38,500 75 175 The firm's total overhead of $3,080,000 is subdivided as follows: manufacturing setups, $672,000; machine processing, $1,848,000; and product shipping, $560,000. 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 $260 and the marketing manager is contemplating a $30 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 < Prev 2 of 2 Next
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