Tucker produces 40,000 Simple and 4,000 Complex small machines. It currently allocates overhead based on machine hours. An ABC study revealed the following activity cost pool data, including the use of activity drivers by Simple machines and Complex machines:

a. What is the current overhead cost per unit for Simple machines, applying overhead based on machine hours?

b. What is the material handling cost assigned to Simple machines under ABC?

c. What is the machining cost assigned to Simple machines under ABC?

d. What is the full overhead cost per unit for Simple machines using ABC?

e. Compare the results under items (a) and (d). What do you conclude?

f. Which strategic and operational decisions could be affected by not having accurate product cost information?

g. What other information would you want to have if you were the manager of Tucker?

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Activity Cost Pool Material handling Setups Machining Quality control Total indirect costs Total Expected Activity Total Cost Assigned $75,000 5,000 orders $200,000 400 setups $800,000 20,000 machine hours $300,000 1,500 inspections $1,375,000 Expected Activity Total machining hours Single overhead rate Simple 3,000 orders 250 setups 15,000 machine hours 1,000 inspections Single overhead rate= Total expected indirect costs/Estimated cost driver Total indirect costs Complex 2,000 orders 150 setups 5,000 machine hours 500 inspections $1,375,000 20,000 $68.75 per hour