Maxey & Sons manufactures two types of storage cabinets-Type A and Type B-and applies manufacturing overhead to all units at the rate of $128 per machine hour. Production Informatlon follows. Type A 25,600 ype B 48,80 Anticipated volume (units) Direct-material cost per unit Direct-labor cost per unit $ 3248 37 37 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 activitles' three respective cost drivers, follow. Type B 188 72,880 150 Total Setups Machine hours Outgoing shipments ype A 148 51,200 280 256 123,208 350 The firm's total overhead of $15,769,600 is subdivided as follows: manufacturing setups, $3,440,640; machine processing, $9,461,760; and product shipping, $2,867,200 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 $378.50 and the marketing manager is contemplating a $42 discount to stimulate volume. Is this discount advisable? Prev 1 of 1Next