Anderson Company uses a conventional cost system with overhead allocated to products on the basis of direct labor hours.The company manufactures two products, for which the following information is available.

StandardUnique

Units Produced15,0005,000

Prime Cost Per Unit$85$125

Direct Labor Hours Per Unit22

Target Selling Price$125$195

Total overhead for 2007 was estimated to be $400,000.The following data reveal several activities and potential cost drivers:

ActivityCostCost Driver(unit, batch, prod, facility)

Material Handling$30,000Material moves?

Machine Set-ups$100,000Set-ups?

Engineering Support$150,000Engineering Hours?

Power for Machines$80,000Machine Hours?

Providing Space$40,00050% to each product?

Total$400,000

Each unit of the standard product requires 2/15 of a machine hour while each unit of the unique product requires 6/15 of a machine hour.Standard products are run in batches of 15 units and unique products are run in batches of 10 units.Standard products require 2 setups per each batch and unique products require 6 setups per each batch.Standard products require one material move per batch while unique products require 3 material moves per batch.Engineers spend 1,000 hours per year on standard products and 2,000 hours per year on unique products.

Requirements:

1.Estimate the cost per unit of the two products using the current cost system.

2.Indicate whether each activity is a unit, batch, product, or facility level activity.

3.Calculate the cost of the two products using ABC.How did the cost of the two products change and why?