Bernadette Inc. makes several products and uses one cost driver (direct labour hours) to assign overhead to the products. Bernadette has started to wonder whether the use of activity based costing (ABC) would be more appropriate. To start, Bernadette would like to investigate what the costing would look like for one product (Product A) using ABC. Details are below.

Current Unit Information of Product A (using direct labour hours as the overhead cost driver)

Selling Price $23

Direct Materials $10

Direct Labour 6

Overhead 3

$19

# of units of Product A sold 150,000

For ABC purposes, Bernadette has broken down the overhead into 4 main activities with related costs:

	Driver (total)	Total Cost	Product As consumption
Order Processing	10,000 orders	$500,000	3,000 orders
Batch setup	1,500 setups	800,000	350 setups
Equipment maintenance	35,000 machine hrs	1,400,000	20,000 MH
Packing	15,000 packs	100,000	2,000 packs

Required

1. What is the total unit cost of Product A using activity based costing?
2. Is Product A currently under-costed or over-costed?
3. Give an example of one useful decision that Bernadette Inc. might make in relation to Product A now that they know a truer cost of Product A.