5-2A - Comparing Traditional Costing and Activity Based Costing Double Bounce Trampolines produces two models of trampolines for backyard fun. The "Original", and the recently introduced "Deluxe". The Deluxe model introduced several safety features that were intended to scare overly protective parents into upgrading. Since its introduction, the deluxe model has been increasing in sales, but at the same time, the company's profits have been declining. The CFO believes that the company's traditional costing system may be to blame. Currently, the company uses direct-labour hours as the basis for applying overhead. The company estimates that it will incur $600,000 in overhead costs in the next year. The following cost data is known: Original Deluxe Direct Materials $50 $75 Direct Labour ($10 per hour) 20 30 Number of units produced 7,000 units 2,000 units The CFO wishes to explore an activity-based costing system Activity (Cost Driver) Estimated MOH Expected Activity Total Standard Assembly (Labour Hours) $100,000 20,000 14,000 6,000 Receiving (Receiving Reports) 200,000 4,000 2,000 2,000 Testing (Number of Tests) 300.000 1,000 800 $600.000 Required: a.) Under the traditional costing method: i. Compute the predetermined overhead rate. ii. Determine the unit cost of each product. b.) Under activity based costing: i Compute the activity rates for each activity. ii. Determine the expected unit cost of each product. c.) Compare and comment on your answers from parts a.) and b.) above. d.) If ABC produces more accurate cost data, why is it not more widely used? Deluxe 200