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    Accounting : Overhead Costing

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    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

    a. find the unit manufacturing cost of Type A and B cabinets using the current overhead costing procedures.

    b. Find the units manufacturing cost of these cabinets using ABC costing.

    c.Is type A cabinets overstated or understated by the use of machine hours to allocate manufacturing overhead to production?

    d.Should we give a $30 discount on Type A cabinents if the selling price is at $260 right now?

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