Case 5-67 Activity-Based Costing; Budgeted Operating Margin LO 5-1, 5-2, 5-4, ( 5-5, 5-7) Whitestone Company produces two subassemblies, JR-14 and RM-13, used in manufacturing trucks. The company is currently using an absorption costing system that applies overhead based on directlabor hours. The budget for the current year ending December 31,201, is as follows: "Total matyactaring oveithad (apesied on the basis of directlabor bourik Mark Ward, Whitestone's president, has been reading about a product-costing method called aetivity-based costing. Ward is convineed that activity-based costing will east a new light on future pronts. As a result. Brian Walters. Whitestone's direetor of cost management, has accumulated cost pool information for this year shown on the following chart. This information is based on a product mix of 5.000 units of JR-14 and 5.000 units of RM-13, In addition, the following information is projected for the next calendar year, 202. On January 1, 20x2, Whitestone is planning to increase the prices of JR-14 to $355 and RM-13 to $455. Material eosts are not expected to increase in 20x2, but direct labor will increase by 8 percent, and all manufacturing overhead costs will increase by 6 percent. Due to the nature of the manuficturing process, the company does not have any beginning or ending work-in-proeess inventories. Whitestone uses a justintime inventory system and has materials delivered to the production facility directly from the vendors. Page 228 The rawmaterial inventory at both the beginning and the end of the month is immaterial and can be ignored for the purposes of a budgeted income statement. The company uses the first-in, first-out (FIFO) inventory method. Required: 1. Explain how activity based costing differs from traditional product-costing methods. 2. Using activity-based costing, calculate the total cost in 20x2 for the following activity cost pools: machining, assembly, material handling. and inspection. (Round to the nearest dollar.) Then, calculate the pool rate per thit of the appropriate cost driver for each of the four activities. (Hint. Refer to Exhibit 5-6, regarding calculation of the pool rate.) 3. Prepare a table showing for each product line the estimated 202 cost for each of the following cost elements: direct material, direct labor, machining, assembly, material handling, and inspection. (Round to the nearest dollar.) 4. Prepare a budgeted statement showing the gross margin for Whitestone Company for 202, using activity-based costing. The statement should show each product and a total for the company. Be sure to include detailed ealculations for the cost of goods manufactured and 5old. (Round each amount in the statement to the nearest dollar.)