Reference no: EM132502232

Wilkins Corporation manufactures two types of handbags-Standard and Custom-and applies manufacturing overhead to all units using machine hours.

Production information follows.

                                               Standard            Custom

Anticipated volume (units) 58,500               31,200

Direct-material cost per unit $ 46                     $ 69

Direct-labor cost per unit 51                                  60

The controller, who is studying the use of activity-based costing, has determined that the firm's overhead can be identified with three activities: manufacturing setups, machine processing, and purchase orders.

Data on the number of setups, machine hours, and purchase orders, which are the activities' three respective cost drivers, follow.

                      Standard                    Custom

Setups                     176               136

Machine hours      62,400                   87,750

Purchase orders            200              150

The firm's total overhead is: $23,423,400

It is subdivided as follows:

manufacturing setups             $5,110,560

machine processing             $14,054,040

purchase orders                  $4,258,800

Required:

Question 1. Compute the per unit total manufacturing cost of Standard and Custom handbags by using the company's current overhead costing procedures with machine hours.

Question 2. Compute the per unit total manufacturing cost of Standard and Custom handbags by using activity-based costing.

Question 3. Assume that the current selling price of a Standard handbag is $330.00 and the marketing manager is contemplating a $60 discount to stimulate volume. Is this discount advisable? Show calculations to support your answer.

Question 4. Which method should the company use and why?