Case 1. SunSystems specializes in servers for workgroup, e-commerce, and ERP applications. The company's original job cost system has two direct cost categories-direct materials and direct labor. Overhead is allocated to jobs at the single rate of $23 per direct labor hour. A task force headed by SunSystem's CFO recently designed an ABC system with four activities. The ABC system retains the current system's two direct cost categories. Thus, it bud- gets only overhead costs for each activity. Pertinent data follow. Co Su th (C Activity Materials handling Machine setup Assembling Shipping Allocation Base Number of parts Cost Allocation Rate S 0.75 Number of setups 500.00 Assembling hours 80.00 Number of shipments 1.500.00 SunSystems has been awarded two new contracts, which will be produced as Job A and Job B. Budget data relating to the contracts follow. Required Job A Job B Number of parts. 15,000 2.000 Number of setups. Number of assembling hours Number of shipments 6 4 1.500 200 1 1 Total direct labor hours. 8,000 600 Number of output units. 100 10 Direct materials cost.... $210,000 $30,000 Direct labor cost $160,000 $12,000 1. Compute the product cost per unit for each job, using the original costing system (with two direct cost categories and a single overhead allocation rate). 2. Suppose SunSystems adopts the ABC system. Compute the product cost per unit for each job using ABC. 3. Which costing system more accurately assigns to jobs the costs of the resources consumed to produce them? Explain. 4. A dependable company has offered to produce both jobs for SunSystems for $5.500 per output unit. SunSystems may outsource (buy from the outside company) either Job A only. Job B only, or both jobs. Which course of action will SunSystems' managers take if they base their decision on

(a) the original system?

(b) ABC system costs? Which course of action will yield more income? Explain.