BCH Corporation produces and sells two types of sofa pillows: plain and fancy. Currently, BCH uses a traditional costing system with direct labour hours as the allocation base. In anticipation of developing an activity-based costing system, BCH has identified the following cost pools and activities associated with pillow production:

Direct costs for a plain sofa pillow are $2 for material and $4 for direct labour (20 minutes @ $12.00 per hour). Direct costs for a fancy sofa pillow are $2.50 for material and $6.00 for direct labour (30 minutes @ $12.00 per hour). In 20x4, BCH expects to make 8,000 fancy pillows and 10,000 plain pillows. Those output levels will require 10 setups for fancy pillows and 5 setups for plain pillows. For the material cutting activity, the number of cuts is estimated at 10,000 for each type of pillow. a) Calculate the cost per unit for each type of pillow under traditional costing. b) Calculate the cost per unit for each type of pillow under ABC.

Estimated Costs Actual Costs Activity Material cutting Sewing machine setups Number of setups Factory maintenance Number of direct labour hours_15,000 Driver Number of cuts for 20x4 $16,000 27,000 for 20x3 $13,665 24,800 $58.000