ABC system: Labor usage: $25 per direct labor hour Material usage (direct materials): $30 per part Machining: $85 per machine hour Purchasing activity: $150 per purchase order Setup activity: $3,500 per setup hour Warranty activity: $550 per returned unit (usually requires extensive rework) Customer repair cost: $40 per repair hour (average) Activity and Resource Information (annual estimates) Design B Design A Units produced 20,000 20,000 Direct material usage 325,000 parts 350,000 parts Labor usage 120,000 hours 50,000 hours 60,000 Machine hours 50,000 Purchase orders 2,000 1,500 Setup hours 800 350 Returned units 1,500 400 Repair time (customer) 2,000 600 Required: 1. Select the lower-cost design using unit-based costing Design A Are logistical and post-purchase activities considered in this analysis? 2. Select the lower-cost design using ABC analysis. Design B 3. What if the post-purchase cost was an environmental contaminant and amounted to $200 per unit for Design A and $50 per unit for Design B? Compute the Post-purchase cost for each design Post-Purchase Cost Design A Design B Assume that the environmental cost is borne by society. Now which is the better design? Design A