At its manufacturing plant in Duluth, Minnesota, EndoElectronics Company manufactures two products, X21 and Y37. For many years, the company has used a simple plantwidemanufacturing support cost rate based on direct labor hours. A new plant accountant suggested that the company may be able toassign support costs to products more accurately by using anactivity based costing system that relies on a separate rate foreach manufacturing activity that causes support costs. Afterstudying the plant's manufacturing activites and costs, the plantaccountant has collected the fowwlowing data for last year:

Item X21 Y37

Units produced andsold 50,000 100,000

Direct Labor Hoursused 100,000 300,000

Direct Laborcost 1,000,000 4,500,000

Number of timeshandled 40,000 20,000

Number ofparts 12,000 8,000

Number of designchanges 2,000 1,000

Number of productsetups 8,000 6,000

The accountant has also determined that actual manufacturingsupport costs incurred last year were as follows;

CostPool Activity Costs

Handling 3,000,000

Number ofparts 2,400,000

Designchanges 3,300,000

Setups 2,800,000

Total 11,500,000

The direct materials cost for product X21 is $120 per unit,while for product Y37 it is $140 per unit.

a. Determine the unit cost of each product using directlabor hours to allocate all manufacturing support costs.

b. Determine the unit cost of each product usingactivity based costing.

c. Which of the two methods produces more accurateestimates of job costs? Explain.

d. Suppose Endo has been setting its product prices byadding a 25% markup to its reported product cost. Compute theproduct prices on the basis of the costs computed in parts (a) and(b). What do you recommend to Endo regarding itspricing?

e. What product level changes do you suggest on thebasis of the activity based cost analysis? Who would beinvolved in bringing about your suggested changes?