Harbour Company makes two models of electronic tablets, the Home and the Work. Basic production information follows: Home Work
Direct materials cost per unit 43 63
Direct labor cost per unit 21 31
Sales price per unit 362 584
Expected production per month 760 units 340 units
Harbour has monthly overhead of $180,790, which is divided into the following cost pools:
Setup costs $73,710
Quality control 62,080
Maintenance 45,000
Total $180,790
The company has also compiled the following information about the chosen cost drivers:
Home Work Total
Number of setups 43 48 91
Number of inspections 320 320 640
Number of machine hours 1,300 1,700 3,000
1. Suppose Harbour uses a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line.
2. Calculate the production cost per unit for each of Harbour’s products under a traditional costing system.
3. Calculate Harbour’s gross margin per unit for each product under the traditional costing system.
4. Select the appropriate cost driver for each cost pool and calculate the activity rates if Harbour wanted to implement an ABC system.
5. Assuming an ABC system, assign overhead costs to each product based on activity demands.
6. Calculate the production cost per unit for each of Harbour’s products in an ABC system.
7. Calculate Harbour’s gross margin per unit for each product under an ABC system.
8. Compare the gross margin of each product under the traditional system and ABC.