4. (18) Veeblefester Company manufactures two types of gizmo (Model A and Model B) in its Longmont plant. Product information:             Model A Model…

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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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