EXERCISE 311 Contrasting Activity-Based Costing and Conventional Product Costing [LO2, LO3, LO4] Rusties Company recently implemented an activity-based costing system. At the beginning of the year, management made the following estimates of cost and activity in the companys five activity cost pools: bre25419_ch03_116-155.indd 146 12/7/11 2:32 PM 128 Introduction to Managerial Accounting Brewer 6e Confirming Pages Activity-Based Costing 147 Activity Cost Pool Activity Measure Expected Overhead Cost Expected Activity Labor-related .......................... Direct labor-hours $18,000 2,000 DLHs Purchase orders ..................... Number of orders $1,050 525 orders Product testing ....................... Number of tests $3,500 350 tests Template etching .................... Number of templates $700 28 templates General factory ....................... Machine-hours $50,000 10,000 MHs Required: 1. Compute the activity rate for each of the activity cost pools. 2. The expected activity for the year was distributed among the companys four products as follows: Expected Activity Activity Cost Pool Product A Product B Product C Product D Labor-related (DLHs) ................................ 500 100 700 700 Purchase orders (orders) .......................... 80 105 180 160 Product testing (tests) ............................... 200 60 0 90 Template etching (templates) .................... 0 14 10 4 General factory (MHs) .............................. 3,400 2,200 1,800 2,600 Using the ABC data, determine the total amount of overhead cost assigned to each product. 3. Assume that prior to implementing ABC, Rusties used a conventional cost system that applied all manufacturing overhead to products based on direct labor-hours. Explain how the conventional overhead cost assignments would differ from the activity-based cost assignments with respect to Product B