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	$	39		$	64
Direct labor cost per unit		24			37
Sales price per unit		355			568
Expected production per month		760	units		340	units

Harbour has monthly overhead of $192,660, which is divided into the following cost pools:

Setup costs	$	75,840
Quality control		60,720
Maintenance		56,100
Total	$	192,660

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

	Home	Work	Total
Number of setups	44	52	96
Number of inspections	350	340	690
Number of machine hours	1,600	1,700	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.)

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

Part 1
Part 2	Plantwide Overhead Rate =$192,660 / 3300 hours =$53.38181818 per machine hours
Part 3
		Home	Work
	No. of Machine hours	1600	1700
	Plantwide Overhead Rate	$           58.38181818	$                          58.38181818
	Allocated Overhead	$                     93,411	$                                    99,249
	No. of units	$                          760	$                                         340
	Overhead cost per unit	$           122.9090909	$                          291.9090909
	Calculation of Production coist per unit and Margin per unit
		Home	Work
	Selling price per unit	$                     355.00	$                                    568.00
	Less:Total Production coist per unit:
	Direct Materials	$                       39.00	$                                      64.00
	Direct labor	$                       24.00	$                                      37.00
	Overhead Cost	$                     122.91	$                                    291.91
	Total Production coist per unit	$                     185.91	$                                    392.91
	Gross Margin per unit	$                     169.09	$                                    175.09
Part 3	Computation of ABC rate
Part 4	Activity	OH Costs(Col 1)	No. of activity base(Col 2)	Activity Rate(Col 1 / Col 2)
Part 5	Setup Costs(No. of setups)	$                     75,840	96	$                                790.00	per setup
Part 6	Quality Control(No. of inspections)	$                     60,720	690	$                                  88.00	per inspection
Part 7	Maintainance(No. of Machine hours)	$                     56,100	3,300	$                                  17.00	per machine hours
	Total Cost	$                  1,92,660
			Home		Work
		ABC rate	Activity Based usage	Cost allocated	Activity Based usage	Cost allocated
	Setup Costs	$                     790.00	44	$                                34,760	52	$                     41,080
	Quality Control	$                       88.00	350	$                                30,800	340	$                     29,920
	Maintainance	$                       17.00	1600	$                                27,200	1700	$                     28,900
	Total Overhead Costs			$                                92,760		$                     99,900
	Units Produced			760		340
	Overhead Costs per unit			$                                122.05		$                     293.82
	Calculation of Production coist per unit and Margin per unit
		Home	Work
	Selling price per unit	$                     355.00	$                                    568.00
	Less:Total Production coist per unit:
	Direct Materials	$                       39.00	$                                      64.00
	Direct labor	$                       24.00	$                                      37.00
	Overhead Cost	$                     122.05	$                                    293.82
	Total Production coist per unit	$                     185.05	$                                    394.82
	Gross Margin per unit	$                     169.95	$                                    173.18