ABC Company uses the traditional costing system to allocate the manufacturing overhead to its two products X and Y using direct labor hours. The total budgeted overhead cost for October is $220,000 with the budgeted direct labor hours of 40,000 hours. The company is considering adopting an activity-based costing system, and collects the following information for the month of October.

Product XProduct Y

Production units20,0002,000

Direct materials cost per kg$10.00$8.00

Direct labor cost per hour$10.00$10.00

Direct labor hours (in total)34,0006,000

Each unit of products X and Y consumes 5kg of raw materials.

Overhead cost pool

Overhead cost

Total activity

Activity Consumption

Product X

Product Y

Machine setup

$ 60,000

1,000 setups

300

700

Engineering change order

$ 80,000

100 orders

20

80

Facility rent

$ 80,000

1,000 sq. feet

300

700

REQUIRED

Show ALL relevant workings where necessary.

(1)Using the Traditional method:

(i)Compute the pre-determined MOH rate (Label the rate correctly)

(ii) Compute the unit manufacturing costs for each product

(2)Using Activity Based Costing:

(i) Compute the Activity rates for the three cost pools. (Label the rates correctly).

(ii) Compute the unit manufacturing costs of each product

(3)Which costing system best reflects the cost of the products. Explain and support your recommendation with relevant data.