2. Lennox Industries manufactures two products: A and B. A review of the company's accounting records revealed the following per-unit costs and the current production volumes: A B Production volume (units) 2,500 5,000 Direct material $ 40 $ 60 Direct labor: 2 hours @ $12 per hour 24 3 hours @ $12 per hour 36 Manufacturing overhead: 2 hours at $93 per DL hour 186 3 hours at $93 per DL hour 279 Manufacturing overhead is currently computed by spreading overhead of $1,860,000 over 20,000 direct labor hours. Management is considering a shift to activity-based costing in an effort to improve the firm's accounting procedures, and the following data are available that can be used for an Activity Based Costing system. All the overhead costs can be divided into three cost pools and the budgeted costs and the associated cost driver that can be used to apply the costs to the products are shown below. Cost Driver Volume Cost Pool Cost Cost Driver A B Total Setups $ 240,000 Number of setups 100 20 120 General factory 1,500,000 Direct labor hours 5,000 15,000 20,000 Machine processing 120,000 Machine hours 2,200 800 3,000 $1,860,000 Lennox determines selling prices by adding desired profit margin (computed as 40% of total cost) to a product's total cost. Required: A. Compute the per-unit cost and selling price of product B by using Lennox's current costing procedures. (4 points) B. Compute the per-unit overhead cost of product B if the company switches to activity-based costing. (3 points) C. Compute the total per-unit cost and selling price for product B under activity-based costing. (3 points) D. Lennox has recently encountered significant international competition for product B, with considerable business being lost to very aggressive suppliers. Will activity-based costing allow the company to be more competitive with product B from a price perspective? Briefly explain. ( 2.5 points) E. Will the cost and selling price of product A likely increase or decrease if Lennox changes to activity-based costing? Why? Hint: No calculations are necessary. (2 points)