Asbury Coffee Enterprises $($ACE$)$ manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have a smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Since the introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE believes that the problem might be in how the accounting system allocates costs to products.

The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which is representative, manufacturing overhead totaled $$1,969,500$ based on production of $30,000$ Personal grinders and $10,000$ Commercial grinders. Direct costs were as follows:

Personal Commercial Total

Direct materials $ $1,441,000$ $ $568,750$ $ $2,009,750$

Direct labor $1,025,000616,2501,641,250$

Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows:

Cost Driver Costs Assigned Activity Level Total

Personal Commercial

Number of production runs $ $937,500502575$

Quality tests performed $800,000152540$

Shipping orders processed $232,00015050200$

Total overhead $ $1,969,500$

Required:

How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product?

How much overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product?Asbury Coffee Enterprises $($ACE$)$ manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have a smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Since the introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE believes that the problem might be in how the accounting system allocates costs to products.

The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which is representative, manufacturing overhead totaled $$1,969,500$ based on production of $30,000$ Personal grinders and $10,000$ Commercial grinders. Direct costs were as follows:

Personal Commercial Total

Direct materials $ $1,441,000$ $ $568,750$ $ $2,009,750$

Direct labor $1,025,000616,2501,641,250$

Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows:

Cost Driver Costs Assigned Activity Level Total

Personal Commercial

Number of production runs $ $937,500502575$

Quality tests performed $800,000152540$

Shipping orders processed $232,00015050200$

Total overhead $ $1,969,500$

Required:

How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product?

How much overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product?