Johnson Marine manufactures marine radios in three models-the 1600 model for the small boat enthusiast who will not venture far from shore, and the 2400 and 3600 models for the those with the need for more features, range, and sensitivity. Johnson manufactures only these three products. Johnson has the following manufacturing activities and the budgeted cost for each:

 

	Cost
Set-up labor	$231,000
Equipment	$135,660
Assembly	$739,500
Materials handling	$405,000
Purchasing	$92,400
Inspection	$325,000
Total	$1,928,560

Johnson uses a volume-based costing system that is based on labor-hours, since the assembly operation is the largest cost operation in the company. The direct labor rate is $22 per hour. Johnson is considering an ABC approach to calculating product cost and has selected the following cost drivers for each activity:

 

Activity	Driver
Set-up labor	Number of set-ups
Equipment	Machine hours
Assembly	Direct labor hours
Materials handling	Weight of materials
Purchasing	Materials cost
Inspection	Number of orders shipped

Johnson also has the following budgeted production data for the three products:

 

	1600	2400	3600
Units produced	10,000	4,000	1,000
Price	$200	$350	$600
Product orders	25	70	200
Production set-ups	10	50	50
Orders shipped	100	400	800
Direct materials cost per unit	$40	$70	$90
Weight of materials per unit	1	3	5
Direct labor hours per unit	3	4	5
Machine hours per unit	6	8	10

Required

1. Determine the unit cost for each of the three products using the current volume-based system.

2. Determine the unit cost for each of the three products using the ABC method.

3. Interpret the difference between your findings in requirements 1 and2.