Activity-based costing, product cost cross-subsidization. Baker's De light (BD) has been in the food processing business three years. For its first two years (19_5 and 1926), its sole product was raisin cake. All cakes were manufactured and packaged in one-kilogram units. A normal costing system was used by BD. The two direct cost categories were direct materials and di- rect manufacturing labour. The sole indirect manufacturing cost category- manufacturing overheadwas allocated to products using a units-of- production allocation base. BD prices on a cost-plus basis. It currently uses a cost plus 40% of cost" guideline. In its third year (19_7), BD added a second product layered carrot cake-that was packaged in onc-kilograms. This product differs from raisin cake in several ways: More expensive ingredients are used. More direct manufacturing labour time is required. More complex manufacturing is required. In 1927, BD continued to use its existing costing system where a unit of pro- duction of either cake was weighted the same. Direct materials costs in 19_7 were $0.60 per kilogram of raisin cake and $0.90 per kilogram of layered carrot cake. Direct manufacturing labour cost in 19_7 was $0.14 per kilogram of raisin cake and $0.20 per kilogram of layered carrot cake. During 1927, BD salespeople reported greater-than-expected sales of layered carrot cake and less-than-expected sales of raisin cake. The budgeted and actual sales volume for 19_7 were as follows: Raisin cake Layered carrot cake Budgeted 160,000 kilograms 40,000 kilograms Actual 120,000 kilograms 80,000 kilograms The budgeted manufacturing overhead for 19_7 was $210,800. At the end of 1927, Jonathan Davis, the controller of BD, decided to in- vestigate how use of an activity-based costing system would affect the prod- uct cost numbers. After consultation with operating personnel, the single manufacturing overhead cost pool was subdivided into five activity areas. These activity areas, their driver, their 19_7 budgeted rate, and the driver units used per kilogram of each cake are as follows: Activity Driver Mixing Labour time Cooking Oven time Cooling Cool room time Creaming/icing Machine time Packaging Machine time Driver Units Budgeted Driver Units per Kilogram of 19_7 Cost per per Kilogram of Layered Carrot Driver Unit Raisin Cake Cake $0.04 5 8 $0.14 2 3 $0.02 3 5 $0.25 0 3 $0.08 3 7 REQUIRED 1. Compute the 19_7 unit product cost of raisin cake and layered carrot cake with the normal costing system used in the 19_5 to 19_7 period. 2. Compute the 19_7 unit product cost per cake under the activity-based normal costing system. 3. Explain the differences in unit product costs computed in requirements 1 and 2. 4. Describe three uses Baker's Delight might make of the activity-based cost numbers