Landon Company makes two models of children’s playhouses, the Castle and the Mansion.
Basic production information follows:
Direct materials cost per unit $41 $69
Direct labor cost per unit $24 $33
Sales price per unit $356 $580
Expected production per month 610 units 460 units
Landon has monthly overhead of $178,150, which is divided into the following cost pools:
Setup costs $81,600
Quality control $65,550
The company has also compiled the following information about the chosen cost drivers:
Castle Mansion Total
Number of setups 39 57 96
Number of inspections 320 370 690
Number of machine hours 1,300 1,800 3,100
Suppose Landon used a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line.
Calculate the production cost per unit for each of Landon’s products under a traditional costing system.
Calculate Landon’s gross margin per unit for each product under the traditional costing system.
Select the appropriate cost driver for each cost pool and calculate the activity rates if Landon wanted to implement an ABC system.
Assuming an ABC system, assign overhead costs to each product based on activity demands.
Calculate the production cost per unit for each of Landon’s products in an ABC system.
Calculate Landon’s gross margin per unit for each product under an ABC system.
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