Question

Harbour Company makes two models of electronic tablets, the Home and the Work. Basic production information follows:

	Home			Work
Direct materials cost per unit	$	37		$	64
Direct labor cost per unit		22			33
Sales price per unit		362			567
Expected production per month		770	units		320	units

Harbour has monthly overhead of $190,520, which is divided into the following cost pools:

Setup costs	$	83,200
Quality control		56,320
Maintenance		51,000
Total	$	190,520

The company has also compiled the following information about the chosen cost drivers:

	Home	Work	Total
Number of setups	36	68	104
Number of inspections	310	330	640
Number of machine hours	1,100	1,900	3,000

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.)

Harbour Company makes two models of electronic tablets, the Home and the Work. Basic production information follows:

Harbour has monthly overhead of $190,520, which is divided into the following cost pools:

Setup costs	$	83,200
Quality control		56,320
Maintenance		51,000
Total	$	190,520

The company has also compiled the following information about the chosen cost drivers:

	Home	Work	Total
Number of setups	36	68	104
Number of inspections	310	330	640
Number of machine hours	1,100	1,900	3,000

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.)

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.)

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.)

4. Select the appropriate cost driver for each cost pool and calculate the activity rates if Harbour wanted to implement an ABC system.

5. Assuming an ABC system, assign overhead costs to each product based on activity demands.

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.)

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.)

8. Compare the gross margin of each product under the traditional system and ABC. (Round your answers to 2 decimal places.)

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.)

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.)

4. Select the appropriate cost driver for each cost pool and calculate the activity rates if Harbour wanted to implement an ABC system.

5. Assuming an ABC system, assign overhead costs to each product based on activity demands.

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.)

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.)

8. Compare the gross margin of each product under the traditional system and ABC. (Round your answers to 2 decimal places.)

Answer 1

1)			overhead assigned
	Home Model		69857
	Work Model		120663
	total overhead cost		190520
2)			Home	Work
	Unit cost		149.72	474.07
3)			Home	Work
	Gross margin		212.28	92.93
4)
	Setups		800	per setup
	Quality control		88	per inspection
	Maintenance		17	per machine hour
			OH assigned	OH assigned
5)			to Home	to Work
	Setup costs		28800	54400
	Quality control		27280	29040
	Maintenance		18700	32300
	total overhead cost		74780	115740
6)			Home	Work
	Unit cost		156.12	458.69
7)			Home	Work
	Gross margin		205.88	108.31
			Home	work
8)	Gross margin(TRA)		212.28	92.93
	Gross margin(ABC)		205.88	108.31