Mitsu Corporation produces two types of flat-screen televisions. The standard televisions are designed for durability. The company recently began producing the higher-quality, high-grade model to appeal to dedicated watchers. Since the introduction of the high-grade product, profits have steadily declined.

Management believes that the accounting system might not be accurately allocating costs to products.

Management has asked you to investigate the cost-allocation problem. You find that manufacturing overhead is currently assigned-to products based on the direct-labor costs in the products. For your investigation, you have data from last month. Last month’s manufacturing overhead was $3,000,000 based on the production of 3,600 standard units and 1,200 high-grade units. Direct-labor and directmaterial costs were as follows:

: Standard High Grade Total MBN eo MD Ol hcl acs ees $1,740,000 $ 660,000 $2,400,000 Direeiiiatenel eweaer b e 1,400,000 1,200,000 | 2,600,000 Management believes that overhead costs are caused by three cost drivers. The cost drivers and their costs for last month were as follows:

Activity Level Cost-Driver Base Costs Assigned Standard High Grade Total Number of-production runs: io... ee. $1,200,000 40 10 50 Qualitvyitests penenmede a). VERE 1,500,000 12 18 : 30 Shioping erdersiprocessed wyWa ne

a. 300,000 100 50 150 Total manufacturing overhead ............ $3,000,000 Required

a. How much of the overhead will be assigned to each product if these three cost-driver bases are used to allocate overhead? What is the total cost per unit produced for each product?

b. How much of the overhead was assigned to each product if direct-labor cost had been used to —

allocate overhead? What is the total cost per unit produced for each product? Is total overhead cost affected by the choice of traditional or ABC costing for overhead? >

c. How might the results from using activity-based costing in requirement

(a) help management understand Mitsu’s declining profits?