Reference no: EM132502238

Leatherback Inc. 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? List at least 3 reasons why.