Problem:
There are 2 types of storage cabinets, type A and B. The manufacturer applies overhead on all units at rate of $80 per machine hour. Production info is this:
Type A Type B
Anticipated volume (units) 8,000 15,000
Direct material cost $35 $60
Direct labor cost $20 $20
There are three ABC overhead cost activities: manufacturing setups, machine processing, and product shipping. Info on these cost drivers are:
Type A Type B Total
Setup 50 30 80
Machine hours 16,000 22,500 38,500
Outgoing shipments 100 75 175
Total overhead = $3,080,000
That is split into: Manufacturing Setup = $672,000
Machine processing = $1,848,000
Product shipping = $560,000
Q1. Find the unit manufacturing cost of Type A and B cabinets using the current overhead costing procedures.
Q2. Find the units manufacturing cost of these cabinets using ABC costing.
Q3. Is type A cabinets overstated or understated by the use of machine hours to allocate manufacturing overhead to production?
Q4. Should we give a $30 discount on Type A cabinents if the selling price is at $260 right now?