Chapter 4 - ABC Costing Class Problem #3 Kralik's Krazy Costumes, LLC manufactures its own costumes for business professionals and has two main products: "The Accounting Nerd" and the "Master Marketer." The Accounting Nerd is a high- volume product, selling 25,000 costumes annually, while the Master Marketer is a low-volume product and sells 5,000 costumes annually. The direct materials cost per unit is $40 for the Accounting Nerd, and $30 for the Master Marketer. The direct labor costs are $12 per hour, and it takes 1 hour to make a costume. Expected total manufacturing overhead costs for the year are expected to be $900,000. Under a traditional approach, the company uses direct labor hours to compute its predetermined overhead rate. Julie Kralik, the owner, decides she would like to analyze the activities being performed in the manufacturing process to better understand her costs and possibly obtain better information to make decisions. In her analysis, she determines there are three main activities being performed, determined the appropriate cost drivers, and estimated the expected use. The data she gathered is as follows: Activity Cost Pools Setting up machines Sewing Inspecting Cost Drivers # of setups Machine hours # of inspections Expected Use per activity 1500 setups 50,000 machine hours 2,000 inspections Estimated OH $ 300,000 $ 500,000 $ 100,000 She then developed the expected use for each of her two product lines, and the following data is below: Accounting Nerd Magic Marketer Activity Cost Pools Setting up machines Sewing Inspecting 500 30,000 500 1,000 20,000 1,500 1. Compute the total cost and unit cost for each of the two products under a traditional costing approach. 2. Compute the activity based overhead rates for each activity. 3. Compute the total cost and the unit cost for each of the two products under an activity based costing approach. What have you learned from this analysis