Ace Computer Products manufactures two styles of computer monitors: one being the traditional CRT style and the other being the sleeker LCD flat screen style. As the LCD model has little costing history, currently Ace has continued to use a single rate for allocating manufacturing overhead based on direct labour hours as it has for many years.

Last year, 40,000 CRT style and 10,000 LCD style monitors were manufactured. With the increasing popularity of the LCD monitors, the Vice President of Production has asked the Controller to determine if a more sophisticated method of allocating manufacturing overhead should be adopted. He has collected the following information on direct labour hours and manufacturing overhead activities and costs from the year just ended as a basis for analysis:

CRT Style LCD Style Overhead Cost

Direct Labour Hours80,00040,000

Overhead Activities:

-Purchase Orders1,6401,360$720,000

-Quality Tests12,5407,460$1,240,000

-Packaging Hours9,8004,200$308,000

REQUIRED:

1.For each product, calculate the manufacturing overhead allocated to each unit under the current costing system. (6 marks)

2.For each product, calculate the manufacturing overhead that would be allocated to each unit if activity-based costing was utilized. (6 marks)

3.Recommend which overhead allocation approach you would recommend and in detail explain why. (2 marks)