Assume that SunSpecs Corporation makes three types of sunglasses, Razors, Slims, and Eagles, for major retailers such as Ray-Ban and Gucci. SunSpecs presently applies overhead using a predetermined rate based on direct labor hours. A consultant recommended that SunSpecs switch to activity-based costing. Management decided to give ABC a try and identied the following activities, cost drivers, and estimated costs for Year 2 for each activity center.

Activity Recommended Cost Driver Annual Costs Estimated Annual Costs driver units

Production Setup # of Production Runs $60000 200

Order Processing # of Orders $100000 400

Materials Handling Pounds of Materials Used $40000 16000

Equip Depreciation & Maintenance Machine Hrs $120000 20000

Quality Management # of Inspections $100000 800

Packing & Shipping # of Units Shipped $80000 80000

$500000

The company estimated 10,000 labor hours would be worked in all of Year 2. Assume the following activities occurred in February of Year 2:

Razors Slims Eagles

# of units produced 3000 2000 1000

Direct materials costs 8000 5000 4000

Direct Labor Hrs 300 200 100

# of Production Runs 2 4 10

# of Orders 16 16 16

Pounds of Material Used 800 500 300

Machine Hrs 800 400 400

# of Inspections 20 20 20

Units Shipped 3000 2000 1000

Direct Labor costs are $20 per hr 6000 4000 2000

b. Compute the production costs for each product for February using the cost drivers recommended by the consultant.