E9.7 (LO 3), AP The managers of Hand It to Me were determined to reduce product costs for the three versions of wireless mouse they carried-small, medium, and large-to be more competitive.
All three product types went through production and packaging and generated the need for factory maintenance. The activity rates for these three key activities are as follows.
MOH Rates
Production $12.00 per DL hour
Packaging $5.00 per packaging hour
Maintenance $3.00 per machine hour
The following resources were consumed for the production of each type of mouse.
Small Medium Large
Direct labor hours used 3,500 6,000 4,500
Packaging hours used 2,500 3,500 4,500
Machine hours used 5,000 5,000 5,000
Units produced 30,000 40,000 30,000
Required
a. Describe what information the managers used to estimate the three activity rates noted above.
b. Allocate MOH costs to the three products using the activity rates given.
c. In addition to the MOH costs, the following DM and DL costs are provided for the three product types.
Small Medium Large
Direct materials cost/unit $3.00 $3.50 $4.00
Direct labor cost/unit $1.40 $1.80 $1.80
If Hand It to Me sells the small mouse for $15, the medium mouse for $18, and the large mouse for $25, what gross margin percentage is it generating for each product?
d. Assume the top competitor's gross margins for each type of mouse are 8% greater than those generated by Hand It to Me. What might managers consider to achieve a higher gross margin for their mouse varieties?
