An assemble-to-order hardware company has two types of central processing units

(CPUs), C1 and C2, and two types of display monitors, M1 and M2. Unit C2 is slightly more complex then C1, as is M2 compared to M1. The annual production volume and direct costs are shown in Table 1-9. Overhead costs for this past year are shown in Table 1-10. Assume that setup and testing costs are similar for both types of CPUs and monitors.

(a) Calculate the cost per unit of each product using the unit-based costing method by allocating overhead based on direct-labor costs.

(b) Calculate the cost per unit of each product using the activity-based costing method.

(c) Discuss the unit costs calculated using these two methods.

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TABLE 1-9 CPU Monitor CI C2 MI M2 Annual volume 10,000 15,000 18,000 20,000 Unit costs Direct labor ($) 80 140 120 200 Direct material ($) 60 100 80 120 Assembly ($) 40 60 60 100 TABLE 1-10 Category Setup and testing Product-line cost CPU CI CPU C2 Monitor MI Monitor M2 Other company costs Cost ($ millions) 1.1 0.5 1.5 0.8 2.5 0.6