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

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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