Harbour Company makes two models of electronic tablets, the Home and the Work. B
ID: 2524789 • Letter: H
Question
Harbour Company makes two models of electronic tablets, the Home and the Work. Basic production information follows:
Harbour has monthly overhead of $179,660, which is divided into the following cost pools:
The company has also compiled the following information about the chosen cost drivers:
Required:
1(a) 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.)
1(b) 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.)
1(c) 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.)
2(a) Select the appropriate cost driver for each cost pool and calculate the activity rates if Harbour wanted to implement an ABC system.
2(b) Assuming an ABC system, assign overhead costs to each product based on activity demands.
2(c) 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.)
3. 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.)
4. Compare the gross margin of each product under the traditional system and ABC. (Round your answers to 2 decimal places.)
Home Work Direct materials cost per unit $ 39 $ 66 Direct labor cost per unit 23 31 Sales price per unit 360 578 Expected production per month 720 units 490 unitsExplanation / Answer
Harbour Company
1a. Determination of the amount of overhead assigned to each product under traditional costing system using machine hours as basis:
Predetermined overhead rate = total overhead cost/total machine hours
Total overhead cost = $179,660
Total machine hours =3,200
Predetermined overhead rate = $179,660/3,200 =$56.14 per machine hour
Home
Work
overhead rate per machine hour
$56.14
$56.14
machine hours
1,700
1,500
total overhead assigned
$95,444
$84,216
number of units
720
490
overhead cost per unit
$132.56
$171.87
Hence, the amount of overhead assigned to each product is as follows,
Home - $95,444
Work - $84,216
1b. calculation of production cost per unit for each product under traditional costing system:
Total unit cost per product:
Home
Work
Direct material cost
$39
$66
Direct labor
$23
$31
overhead
$132.56
$171.87
Total cost
$194.56
$268.87
1c. Calculation of gross margin per unit for each product under the traditional costing system:
Gross margin per unit:
Home
Work
Sales price per unit
$360
$578
Direct material cost
$39
$66
Direct labor
$23
$31
Overhead
$132.56
$171.87
Total cost
$194.56
$268.87
Gross margin
$165.44
$309.13
2a. Activity rates under ABC system –
Cost Pool
estimated cost
Cost driver
Total usage
activity rate
Setup costs
$70,840
Number of setups
92 setups
$770 per setup
Quality control
$57,620
number of inspections
670 inspections
$86 per inspection
Maintenance
$51,200
number of machine hours
3,200 MH
$16 pr MH
Note – activity rate = estimated cost/total usage
2b. Assign overhead cost to each products based on activity demands and ABC system:
Home
Cost Pool
Activity Demand
Activity Rate
Overhead assigned
Setup costs
40 setups
$770 per setup
$30,800
Quality control
340 inspections
$86 per inspection
$29,240
Maintenance
1,700 MH
$16 per MH
$27,200
Total overhead assigned
$87,240
production in units
720
overhead assigned per unit
$121.17
Note –
= $87,240/720 = $121.17 per unit
Work
Cost Pool
Activity Demand
Activity Rate
Overhead assigned
Setup costs
52 setups
$770 per setup
$40,040
Quality control
330 inspections
$86 per inspection
$28,380
Maintenance
1,500 MH
$16 per MH
$24,000
Total overhead assigned
$92,420
production in units
490
overhead assigned per unit
$220.04
Note –
= $92,420/420 = $220.04 per unit
2c. Calculation of production cost per unit for each product under ABC system:
Production cost per unit –
Home
Work
Direct material cost
$39
$66
Direct labor
$23
$31
Overhead
$121.17
$220.04
Total cost
$183.17
$317.04
Gross margin per unit:
Home
Work
Sales price per unit
$360
$578
Direct material cost
$39
$66
Direct labor
$23
$31
Overhead
$121.17
$220.04
Total cost
$183.17
$317.04
Gross margin
$176.83
$260.96
Gross Margin per unit:
Home
Work
Traditional System
$165.44
$309.13
ABC System
$176.83
$260.96
Home
Work
overhead rate per machine hour
$56.14
$56.14
machine hours
1,700
1,500
total overhead assigned
$95,444
$84,216
number of units
720
490
overhead cost per unit
$132.56
$171.87
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