The president of Complex Products, Inc. is attending a management seminar and has just heard about activity-based costing. She wonders whether it would help her company.

Complex Products, Inc. uses common machinery to manufacture two complex products.

Each year, there are two production runs for each product requiring similar set-up effort. Manufacturing overhead includes set-up cost totaling \($52,000\). To maintain a competitive edge, these products are updated periodically to conform to the latest technological advancements. These engineering changes are considered part of manufacturing over head and cost \($26,000\) per year. Total overhead for the company including the cost of setup and engineering changes is \($175,000\) per year. Direct labor hours total 7,000 for the year.

The following information is available for products C and D:

Required:

a. Calculate the cost per unit for each product using traditional overhead allocation.

b. Calculate the cost per unit for each product using activity-based costing.

c. Do you believe activity-based costing would benefit Complex Products, Inc.? Explain your answer.

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Product C Product D Units produced 1,000 1,000 Direct material cost per unit $24 $24 Direct labor cost per unit $36 $48 Machine hours per unit 6 8 Direct labor hours per unit 3 4 Engineering changes per year 6 2