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.