Dazzle Accents Company manufactures and sells two styles of kitchen faucets, brass and chrome. The company currently uses the traditional system to allocate manufacturing overhead costs and bases the allocation on direct labor hours. However, the production manager has heard about activity-based costing and has assembled some information to change the traditional cost system to a cost driver concept.

The following information applies to the current year.

BRASS CHROME

Projected sales in units 30,000 50,000

Selling price per unit $40.00 $20.00

Per Unit Cost data

Direct materials $ 8.0 $ 4.0

Direct labor $ 15.0 $ 3.0

Overhead cost based on DL hours $ 12.0 $ 3.0

(traditional system)

Hours per 1000-unit batch

Direct labor hours 40.0 10.0

Setup hours 1.0 0.5

Machine and Inspection hours 30.0 20.0

Total overhead costs and activity levels for the year are estimated as depicted below.

Activity	Overhead Costs	Activity Levels	Activity Cost Allocation Rate
Setups	$465,500	95 setup hours	?
Machine use and Inspections	$405,000	2,700 hours	?

Required:

1. Calculate the total manufacturing cost per unit and the gross profit per unit using both the traditional and ABC methods.

2.It is said that compared to the traditional system, the ABC system provides a more realistic measure of cost and profitability for each product. Explain why and how it may impact the company's future financial performance.