California Dreamin' manufactures 1960s style clothing and accessories. The company produces two main products: Floral and Tie-Dye. Currently the company uses a traditional overhead rate in which Manufacturing Overhead is allocated to products based on direct labor hours logged. The projected production levels for the period are 1,000 units of Floral and 500 units of Tie-Dye.

Due to profitability concerns, management is considering switching to Activity Based Costing (ABC). Management has divided Manufacturing Overhead Costs into three activities and cost pools: Assembly $32,000; Machine Setup $12,000; and Product Movement $102,600. Management has identified the following cost drivers for each overhead activity: direct labor hours for assembly, number of setups for machine setup, and number of moves for product movement.

The following information has been compiled for each product line:

	Floral	Tie-Dye
direct labor requirements	0.75 direct labor hours per unit	1.0 direct labor hours per unit
machine setup requirements	1 setup per every 10 units produced	1 setup for every 25 units produced
product movement requirements	1 move per every 25 units produced	1 move per every 25 units produced

The direct material cost for each Floral unit is $10.50; the direct material cost for each Tie-Dye unit is $15.25. Direct laborers are paid at a rate of $20 per direct labor hour.

QUESTION 1: The per unit cost distortion of the Tie-Dye product line is

A.

$9.64.

B.

$1.18.

C.

$25.01.

D.

$19.28.

E.

$20.71.

QUESTION 2: Assuming the company marks up costs by 75% to determine sales price, the Floral line is being

A.

overpriced by $33.74 per unit.

B.

overpriced by $2.07 per unit.

C.

overpriced by $36.24 per unit.

D.

underpriced by $7.23 per unit.

E.

underpriced by $16.87 per unit.