8:07 PM Thu 2 Dec 33% Done ACCT 2017 activity-based costing question Alvelo (14 of 16) Question Alvelo Limited produces more than a dozen types of boat motors. The 240- horse power motor is the most difficult to produce and the most expensive. The 60- horsepower model, which is the company's leading seller, is the easiest to produce. The other models range from 70 to 220 horsepower, and the difficulty of producing them increases as the horsepower increases. Rodak Limited recently ordered 175 of the 80- horsepower model. Because Alvelo Limited is considering a shift to activity-based costing (ABC), its controller, Song Shin is interested in using this order to compare ABC with traditional costing. Costs directly traceable to the Rodak order are as follows: Direct materials $57,290 Purchased part $76,410 Direct labour hours 1,320 Average direct labour pay rate per hour $14.00 With the traditional costing approach Song Shin applies manufacturing overhead costs at a rate of 320 percent of direct labour costs For activity-based costing of the Rodak order, Song Shin uses the following data; Activity cost $62.00 per Activity Cost driver rate Activity usage Product design Engineering hours engineering 76 engineering hours hour Work cell setup Number of setups setup 16 setups Parts production Machine hours machine hour 380 machine hours $90.00 per $38.00 per rate Direct materials $57,290 Purchased part $76,410 Direct labour hours 1,320 Average direct labour pay rate per hour $14.00 With the traditional costing approach Song Shin applies manufacturing overhead costs at a rate of 320 percent of direct labour costs For activity-based costing of the Rodak order, Song Shin uses the following data; Activity Cost driver Activity cost Activity usage Product design Engineering hours $62.00 per engineering 76 engineering hours hour Work cell setup Number of setups $90.00 per setup 16 setups Parts production Machine hours $38.00 per machine hour 380 machine hours Assembly Assembly labour $40.00 per assembly 500 assembly labour hours labour hour hours Product simulation Testing hours $90.00 per testing hour 28 testing hours Packaging and Product units $26.00 per unit 175 units Shipping Building occupancy Direct labour cost 125% of direct labour cost $18,480 direct labour cost Required: (1) Use the traditional costing approach to compute the total cost and product unit cost of the Rodak order. (2) Use ABC to compute the total cost and product unit cost. (3) What is the difference between the product unit cost you computed using the traditional approach and the one you computed using ABC? Does the use of ABC guarantee cost reduction for every order