29 Jun Question 4. (18) Veeblefester Company ma
Question
4. (18) Veeblefester Company manufactures two types of gizmo (Model A and Model B) in its Longmont plant. Product information:
4. (18) Veeblefester Company manufactures two types of gizmo (Model A and Model B) in its Longmont plant.
Product information:
Model A
Model B
Direct material/unit
$40
$55
Direct labor/unit
$32
$47
Budgeted volume (units)
8,000
10,000
Setups
50
30
Machine hours
16,000
24,000
Shipments
230
170
Budgeted overhead for the year is $3,200,000
a) Compute the unit cost of each model if overhead is allocated on the basis of machine hours.
b) Overhead costs are driven 55% by machining, 25% by setups, and 20% by shipments.
Compute the unit cost of each model if overhead is allocated with an ABC system, using
these three cost drivers.
c) Model A currently sells for $300/unit. In order to meet budgeted sales volume, the
marketing department is advocating a 15% price cut. Is this advisable? Explain.
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