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

Model A

Model B

Product information:

Direct material/unit

$40

$55

Direct labor/unit

$32

$47

Budgeted volume (units)

8,000

10,000

Setups

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.

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.