ACI IVI I Y - BASED COSTING : SAMPLE PROBLEM P. 1 OF 2 CHAPTER #7 Digital Electronics Corporation manufactures two microprocessors the RL2005 and the RXL2014. The company plans to produce and sell 6,000 RL2005 processors and 4,000 RXL processors in the current year Digital currently uses a traditional overhead allocation system based solely on production machine hours. Total overhead costs for the year are estimated to be $550,000. The total machining hours for the year are projected to be 5,000. Digital's management believes that the current system of overhead allocation is distorting product costs and selling prices Digital has decided to institute an activity-based costing system, using three activity level cost pools. Information on these pools are as follows: Activity Cost Pools(Allocation Basis) Quality Assurance (# of inspections) Production Setup (# of setups) General Factory (machine hours) 200,000 250,000 100,000 Planned Activity by Product: RL2005 20 RXL2014 30 inspections setups machine hours direct labor direct material Total 50 10 5,000 3,500 200,000 200,000 1,500 100,000 150,000 P. 2 OF 2 a) Using traditional costing, what is the applied overhead rate per machine hour? Rlaos 10 5,009 b) Using traditional costing, what is the total overhead that would be applied to each of the processors? RL abos isoo A 110 c) Using traditional costing, what is the product cost per unit for each product? d) Using activity-based costing, calculate the overhead application rate for each of the cost pools e) Using activity-based costing, what is the amount of overhead cost that would be applied to each product? ) Using activity-based costing, what is the product cost per unit for each product