2. Activity-Based Costing versus Traditional Costing Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company's two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters. Manufacturing overhead is currently assigned to products based on direct labor costs. For the most recent month, manufacturing overhead was $280,000. During that time, the company produced 12,000 units of the M-008 and 2,000 units of the M-123. The direct costs of production were as follows: M-008 M-123 Total Direct materials $100,000 $80,000 $180,000 Direct labor 100,000 40,000 140,000 Management has determined that overhead costs are caused by three cost drivers. These activities/cost drivers and their costs for last year are as follows: Cost Driver Number of machine-hours Number of production runs Number of inspections Total overhead Activity Level Activity Cost M-008 M-123 Total 120,000 5.000 3,000 8,000 70,000 10 10 20 90.000 20 60 $280,000 40 Required a. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the per-unit cost for each product? b. How much overhead will be assigned to each product if the three cost drivers are used to allocate overhead? What is the per-unit cost for each product? c. Draft a memo for the plant manager explaining why the two systems result in different costs along with your recommendation for which costing system to use