1.AXY Company produces two products, the ABB and the ACC. The ABB is a high-volume item totaling 50,000 units annually. The ACC is a low-volume item totaling only 10,000 units per year. Each product requires 4 hour of direct labor for completion. Therefore, total annual direct labor hours are 240,000. Expected annual manufacturing overhead costs are $1,600,000. The cost allocation base is direct labor hour. The direct materials cost per unit is $80 for the ABB and $60 for the ACC. The direct labor cost is $24 per unit for each product.

AXY Company's expected annual overhead costs of $1,600,000 relate to two activitiesmachine setups, machining.

Activity

Cost Driver

Total expected overhead cost

Total expected use of driver

Machine setup

Number of setup

$600,000

3000

Machining

Machine hours

1,000,000

100,000

Cost Driver

ABB

ACC

Number of setup

1000

2000

Machine hours

60,000

40,000

Required:

a.Allocate overhead cost in traditional costing system and ABC costing system.

b.Determine unit cost under traditional costing and ABC costing system and comment on it.