Activity Based Costing for Maxey and Sons Manufacturing
Not what you're looking for?
Maxey & Sons manufactures two types of storage cabinets - Type A and Type B and applies manufacturing overhead to all units at the rate of $80 per machine hour. Production information follows.
Type A Type B
Anticipated volume (units).............. 8,000 15,000
Direct material cost .......................$35 $60
Direct labor cost ...........................$20 $20
The controller who is studying the use of activity based costing has determined that the firm's overhead can be identified with 3 activities: manufacturing setups, machine processing, and product shipping.
Data on the number of setups, machine hours, and outgoing shipments, which are the activities 3 respective cost drivers, follows.
Type A Type B Total
Set ups..................... 50 30 80
Machine hours............16,000 22,500 38,500
Outgoing shipments....... 100 75 175
The firms's total overhead of $3,080,000 is subdivided as follows:
Manufacturing setups $672,000
Machine processing $ 1,848,000
Product shipping $560,000
1. Compute the unit manufacturing cost of TypeA 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 overstate or unstated by the use of machine hours to allocate total manufacturing overhead to production? By how much?
4. Assume that the selling price of Type A storage cabinet is $260 and the marketing manager is contemplating a $30 discount to stimulate volume. Is this discount advisable - explain.
Purchase this Solution
Solution Summary
The solution calculates unit manufacturing cost by using the company's current overhead costing procedures and using activity based costing.
Solution Preview
Maxey & Sons manufactures two types of storage cabinets - Type A and Type B and applies manufacturing overhead to all units at the rate of $80 per machine hour. Production information follows.
Type A Type B
Anticipated volume (units).............. 8,000 15,000
Direct material cost .......................$35 $60
Direct labor cost ...........................$20 $20
The controller who is studying the use of activity based costing has determined that the firm's overhead can be identified with 3 activities: manufacturing setups, machine processing, and product shipping.
Data on the number of setups, machine hours, and outgoing shipments, which are the activities 3 respective cost drivers, follows.
Type A Type B Total
Set ups..................... 50 30 80
Machine hours............16,000 22,500 38,500
Outgoing shipments....... 100 75 175
The firms's total overhead of $3,080,000 is subdivided as follows:
Manufacturing setups $672,000
Machine processing ...
Purchase this Solution
Free BrainMass Quizzes
Income Streams
In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.
Production and cost theory
Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.
Motivation
This tests some key elements of major motivation theories.
Understanding the Accounting Equation
These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.
Marketing Management Philosophies Quiz
A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.