Bruno Inc. developed two products: HotPlay and ColdGame. The company had done a market survey and decided that a 50% mark up on total cost to get a target price is reasonable. However, the data on current and target sales prices as follows is very confusing to the company's controller. HotPlay ColdGame Target Price (in $, at 150% of total cost) 859.50 663.75 Actual Current Selling Price (in ) 639.00 700.00 Target price achieved (?) No Yes The controller knew that the company could no longer increase the price of HotPlay because of the competition. He also knew that even though the company had achieved the target price for ColdGame, the current sales price of ColdGame is still one of the lowest in the industry. He is wondering whether there had been an under or over costing for the products. Currently, Bruno Inc is using traditional costing in allocating its overhead cost to the products. The predetermined OH rate is calculated based on the total direct labor cost budget. Direct labor cost is $20 per hour. Other data for HotPlay and ColdGame: HotPlay ColdGame Annual Production & Sales 8,000 units 4,000 units Raw Material Cost per unit $ 105.00 S 52.50 Direct Labor Hour per unit 2.4 hour 2.0 hour Machine Hour needed per unit 1 hour 2 hour The controller wants to implement Activity Based Costing and had been collecting the following information: Five activity cost pools and the related cost drivers: Manufacturing Overhead Budget In $ Cost Drivers Machinery 1,290,000 Machine hours Machine Setup 720,000 Number of setups Inspection 930,000 Number of inspections Material Handling 840,000 Direct Labor Hour Order Taking 420,000 Number of change orders Total MOH Budget 4,200,000 HotPlay and ColdGame is produced per batch, with 100 units of HotPlay and 50 units of ColdGame per batch Setup for HotPlay machine is done after two batches are produced, while the setup for ColdGame machine is done for every batch production. Inspection is done for every batch produced. There are ten change orders for HotPlay and 20 change orders for ColdGame. Required: a. Calculate allocated manufacturing overhead cost per unit and total product cost per unit using the current method of overhead cost allocation. (3%) b. Using Activity Based Costing method: i Calculate cost allocation rate for each activity cost pool (10%) ii. Calculate allocated manufacturing overhead cost per unit product (10%) Calculate total product cost (2%) c. Identify whether there are over- or under-costing for both the products (2%) d. Provide a recommendation to Bruno, Inc. based on your answer (3%)