Chapter 7: Activity-Based Costing Additional Problems 1. Holmes Furniture Company has always used the traditional allocation method for their factory. They produce three type of tables: small, medium and large. Due to increased competition, they are considering switching to an activity-based costing system for the current year to control their costs better. Four activities were identified related to overhead costs: quality control, machine setups, materials handling and maintenance. Estimated costs for the year for these activities are as follows: Costs Quality control $ 48.000 Machine setups 50,000 Materials Handling 150,000 Maintenance 750,000 Total $998.000 The cost drivers and the expected usage related to these activities are: Activity Cost Drivers Quantity Quality control Number of units produced 80,000 Machine setups Number of setups 500 Materials handling Pounds of direct material used 1,000,000 Maintenance Number of machine hours 500.000 The actual results for the year for the three products are as follows: Large Tables Medium Tables Small Tables Units produced 2,000 20,000 58,000 Setups 100 200 200 Pounds of direct material 500,000 300,000 200,000 Machine hours 100,000 200,000 200,000 Direct labor hours 40,000 30,000 30,000 The cost per pound of material is $2 and the assembly workers are paid $10 per hour. Determine the total product cost for each product using the: a. traditional method based on direct labor hours. Also compute the unit product cost. b. activity-based costing method. Also compute the unit product cost