Aunt Ethel's Fancy Cookie Company manufactures and sells three flavors of cookies: Macaroon, Sugar, and Buttercream. The batch size for the cookies is limited to 1,000 cookies based on the size of the ovens and cookie molds owned by the company. Based on budgetary projections, the information listed below is available:

Macaroon Sugar Buttercream

Projected sales in units 500,000 800,000 600,000

Per Unit data:

Selling price $0.80 $0.75 $0.60

Direct materials $0.20 $0.15 $0.14

Direct labour $0.04 $0.02 $0.02

Hours per 1000-unit batch:

Direct labour hours 2 1 1

Oven hours 2 1 .5

Packaging hours 1.0 0.5 0.5

Total overhead costs and activity levels for the year are estimated as follows:

Activity Overhead costs Activity levels

Direct labour 2,400 hours

Oven $210,000 2,100 oven hours

Packaging $150,000 1200 packaging hours

$360,000

a. Using the traditional system, determine the operating profit per unit for each cookie.

b. Determine the activity cost driver rate for oven costs and packaging costs.

c. Using the ABC system, for each cookie:

1. compute the estimated overhead costs per unit.

2. compute the estimated operating profit per unit.

d. Explain the difference between the profits obtained from the traditional system and

the ABC system. Which system provides a better estimate of profitability? Why?