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6. Our company is a manufacturer of long-lasting lithium batteries used in autonomous drones. We currently offer two batteries to our clients: Model A and

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6. Our company is a manufacturer of long-lasting lithium batteries used in autonomous drones. We currently offer two batteries to our clients: Model A and Model B. Through December 2019, we used traditional normal absorption costing, with direct labor hours (DLHs) to allocate all manufacturing overhead (OH) to products. Unit cost estimates for 2020 from the traditional system were $106.24 per unit of Model A, and $233.69 per unit of Model B. In January 2020, we decided to experiment with an activity-based costing (ABC) system. Our CFO required that all OH costs be allocated to our two battery models in the ABC system. To build the ABC system, we identified four major business processes (activities) and activity measures to allocate the cost of each activity cost pool. Selected information about the four activities and activity measures are below (some information is intentionally omitted): Activity Cost Pool Activity Measure Total Cost Total Activity Equipment usage Machine hours (MHs) $973,000 MH Equipment setups Number of setups setups Engineering support Number of products $140,000 products Customer support Direct labor hours (DLHs) $500,000 DLH Additional information about the two products is below: Model A Model B Direct materials per unit $7.81 $17.63 Direct labor per unit $11.24 $19.88 Product line totals: Units 12,600 4,100 Machine hours (total) 3,780 4,510 Number of setups (total) 200 120 Direct labor hours (total) 7,560 5,535 6.1 [10 points]. Compute the cost per unit for our two products using our proposed ABC system. 6.2 [5 points]. An external consultant is concerned that our proposed ABC system suffers from the volume bias and from the death spiral. Carefully explain why our proposed system suffers from these two problems

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