Demski Company has used a two-stage cost allocation system for many years. In the first stage, plant overhead costs are allocated to two production departments, P1 and P2, based on machine hours. In the second stage, Demski uses direct labor hours to assign overhead costs from the production departments to individual products A and B.

Budgeted factory overhead costs for the year are $300,000. Both the budgeted and actual machine hours in P1 and P2 are 12,000 and 28,000 hours, respectively. After attending a seminar to learn the potential benefits of adopting an activity-based costing system (ABC), Ted Demski, the president of Demski Company, is considering implementing an ABC system. Upon his request, the controller at Demski Company has compiled the following information for analysis: Cost Pool Factory Overhead Costs Activity Cost Driver Expected Activity Level

Machine Setup $100,000 Setup hours 1,000 Inspection 50,000 Inspection Hours 2,500 Power 50,000 Kilowatt Hours 25,000 Supervision 100,000 Direct Labor Hours 10,000 Total Overhead Cost $300,000

Demski manufactures two types of product, A and B, for which the following information is available:

A B

Units Produced and Sold 5,000 10,000 Direct Materials $200,000 $250,000 Direct Labor Costs $80,000 $150,000 Direct Labor Hours in P1 1,500 3,000 Direct Labor Hours in P2 1,500 4,000 Setup Hours 700 300 Inspection Hours 1,500 1,000 Power (Kilowatt Hours) 12,500 12,500

Required: (1) Determine the unit cost for each of the two products using the traditional two-stage allocation method. Round calculations to 2 decimal places. (2) Determine the unit cost for each of the two products using the proposed ABC system. (3) (a)Compare the unit manufacturing costs for product A and product B computed in requirements 1 and 2. Why do two the cost systems differ in their total cost for each product? (b) Why might these differences be important to the Demski Company?

***This was all I was given.