Lennox Industries manufactures two products: A and B. A review of the company's accounting records revealed the following per-unit costs and production volumes:

Manufacturing overhead is currently computed by spreading overhead of $1,860,000 over 20,000 direct labor hours. Management is considering a shift to activity-based costing in an effort to improve the firm's accounting procedures, and the following data are available:

Lennox determines selling prices by adding 40% to a product's total cost.
Required:
a. Compute the per-unit cost and selling price of product B by using Lennox's current costing procedures.
b. Compute the per-unit overhead cost of product B if the company switches to activity-based costing.
c. Compute B's total per-unit cost and selling price under activity-based costing
d. Lennox has recently encountered significant international competition for product B, with considerable business being lost to very aggressive suppliers. Will activity-based costing allow the company to be more competitive with product B from a price perspective? Briefly explain.
e. Will the cost and selling price of product A likely increase or decrease if Lennox changes to activity-based costing? Why?

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Production volume (units) Direct material Direct labor: 5,000 $ 60 2,500 $ 40 2 hours at $12 24 3 hours at $12 36 Manufacturing overhead: 2 hours at $93 3 hours at $93 186 279 Cost Driver Volume B Cost Pool Setups General factory Machine processing Cost Driver Number of setups Direct labor hours Machine hours Total Cost $ 240,000 100 20 120 5,000 15,000 20,000 800 1,500,000 2,200 120.000 $1,860,000