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    Activity Based Costing for Maxey and Sons Manufacturing

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    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.

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    https://brainmass.com/business/management-accounting/activity-based-costing-maxey-sons-manufacturing-177815

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    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 ...

    Solution Summary

    The solution calculates unit manufacturing cost by using the company's current overhead costing procedures and using activity based costing.

    $2.19

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