Cost and operating data for A Company and its two products, JP and RQ. The company has two activities, Assembly and Machining. Operating information is presented below:

Total JP RQ

Units Produced 200,000 100,000 100,000

Direct Labor Hours - Assembly Department 58,000 39,000 19,000

Machine Hours - Machining Department 25,000 5,000 20,000

Direct Material Cost $300,000 $150,000 $150,000

Direct Labor Cost $1,000,000 $800,000 $200,000

Total Overhead by Activity (Deparment) with Cost Driver

Assembly Department - Overhead

is primarily supervision, heat, light,

supplies.

Cost Driver is Direct Labor Hours $192,000

Machining Department - Overhead

is primarily supervision, maintenance,

heat, light , supplies.

Cost Driver is Machine Hours $240,000

Total Manufacturing Overhead $432,000

Management currently allocates all manufacturing overhead based on one overhead rate using total labor hours as the allocation base (cost driver) because it simplifies the accounting process. The total unit cost (including direct labor and direct material) of JP under the current method of allocating overhead is $12.41 and the selling price is $16.13. The company's prices all products at 30% above total manufacturing cost. Round all answers to two decimal points.

The president comes to you for advice.Product JP is in a highly competitive market and seems to be so expensive for her company to make. Yet the competition is charging a $1.25 less per unit. She is beginning to think she cannot compete in the market even though she knows she is one of the most cost-efficient firms in the industry.She comes to you for advice. She said she attended a seminar regarding the use of activity-based costing, but she was not quite certain if it could help her.

Please answer the following questions and clearly identify which sections you are answering in your response:

(3 points) - Would you recommend the president use activity-based costing in this specific situation? You MUST justify your answer with specifics to receive credit.

(7 points) - Using ABC determine the overhead allocated to Product JP and and total product cost of JP. You MUST support your answer with calculations to receive credit.

(3 points) - Do you think the company will be able to price product JP more competitively using ABC? You MUST support your answer with calculations to receive credit?

(2 points) - If the company switches to ABC to allocate overhead, what are the implications to the costing of product RQ. You do not have to provide any calcutions, just discussion.