ABC Manufacturing, Inc. produces three gadgets (Ace, Best, and Champ) in two departments, Machining and Assembly. Each product requires one hour of direct labor for completion. The following table provides production and cost data for the year.

	Ace	Best	Champ	Total
Number of units	25,000	15,000	5,000	45,000
Machine hours	2,500	1,500	2,000	6,000
Direct materials	$1,000,000	$450,000	$275,000	$1,725,000
Direct labor	375,000	225,000	75,000	675,000
Overhead
Machining				900,000
Assembly				450,000
Total overhead				1,350,000
Tot costs				$3,750,000

Required:

Use the plantwide allocation method to determine the unit cost for each product using each of the following allocation bases:

1. Machine hours
2. Direct labor costs

Problem 2 Continued from Problem 1

Considering the nature of the production processes, the cost accountant of ABC Manufacturing decided to experiment with the department-specific allocation approach and determined that the Machining Department can use machine hours as the allocation base for overhead assignment while the Assembly Department can use direct labor costs instead.

Required:

Use the department allocation method to determine the unit cost for each product.

Problem 3Continued from Problem 1

The cost accountant of ABC Manufacturing attended a workshop on activity-based costing and was impressed by the results. After consulting with the production personnel, he prepared the following information on cost drivers and the estimated volume for each driver.

		Cost Driver Volume
Activity	Cost Driver	Ace	Best	Champ	Total
Machining:
Setup	Number of setups	125	75	50	250
Machining	Machine hours	2,500	1,500	2,000	6,000
Assembly:
Assembly	Direct labor hours	25,000	15,000	5,000	45,000
Inspection	Number of inspections	50	25	25	100

The cost accountant also determined how much overhead costs were incurred in each of the four activities as follows:

Activity	Overhead Costs
Machining:
Setup	$ 150,000
Machining	750,000
Total Machining department overhead	900,000
Assembly:
Assembly	360,000
Inspection	90,000
Total Assembly department overhead	450,000
Total overhead costs	$1,350,000

Required:

1. Determine the cost driver rate for each activity cost pool.
2. Use the activity-based costing method to determine the unit cost for each product.
3. Summarize and comment the results.