PA4-3 (Algo) Selecting Cost Drivers, Assigning Costs Using Activity Rates [LO 4-1, 4-3, 4-4, 4-6 ]

Harbour Company makes two models of electronic tablets, the Home and the Work. Basic production information follows:

	Home			Work
Direct materials cost per unit	$	39		$	68
Direct labor cost per unit		22			35
Sales price per unit		350			571
Expected production per month		710	units		440	units

Harbour has monthly overhead of $157,785, which is divided into the following cost pools:

Setup costs	$	72,540
Quality control		52,245
Maintenance		33,000
Total	$	157,785

The company has also compiled the following information about the chosen cost drivers:

	Home	Work	Total
Number of setups	43	50	93
Number of inspections	320	325	645
Number of machine hours	1,400	1,600	3,000

Required: 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. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount.)

2. Calculate the production cost per unit for each of Harbours products under a traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places.)

3. Calculate Harbours gross margin per unit for each product under the traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places.)

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 Harbours products in an ABC system. (Round your intermediate calculations and final answers to 2 decimal places.

7. Calculate Harbours gross margin per unit for each product under an ABC system. (Round your intermediate calculations and final answers to 2 decimal places.)

8. Compare the gross margin of each product under the traditional system and ABC. (Round your answers to 2 decimal places.)

Overhead Assigned Home Model: Work Model: Total Overhead Cost Home Work Unit Cost Home Work Gross Margin Setup Costs Quality Control Maintenance Overhead Assigned To Home Overhead Assigned To Work Setup Costs Quality Control Maintenance Home Work Unit Cost Home Work Gross Margin Home Work Gross Margin (Traditional) Gross Margin (ABC)