EXERCISE 5-2 Contrasting ABC and Traditional Product Costs [L01 - CC1, 2; L02 - CC6, 7] Harrison Company makes two products and uses a conventional costing system in which a single plantwide, predetermined overhead rate is computed based on direct labour-hours. These products are customized to some degree for specific customers. Data for the two products for the upcoming year follow: Rascon Parcel Direct materials cost per unit $29.50 $23.00 Direct labour cost per unit $18.00 $4.50 Direct labour-hours per unit 0.80 0.30 Number of units produced 30,000 120,000 Required: 1. The company's manufacturing overhead costs for the year are expected to be $864,000. Using the company's traditional costing system, compute the unit product costs for the two products. 2. Management is considering an ABC system in which half of the overhead would continue to be allocated on the basis of direct labour-hours and half would be allocated on the basis of engineering design time. This time is expected to be distributed as follows during the upcoming year: Rascon Parcel Total 6,000 3,000 9,000 Engineering design time in hours) Compute the unit product costs for the two products using the proposed ABC system. 3. Explain why the product costs differ between the two systems. Activity Cost Pool Estimated Overhead Cost Expected Activity Labour related $ 48,000 10,000 direct labour-hours Machine related 67.500 30,000 machine-hours Machine setups 84,000 600 setups Production orders 112,000 4,000 orders Product testing 58,500 1,800 tests Packaging 90,000 4,500 packages General factory 672,000 10,000 direct labour-hours Required: 1. Compute the activity rate for each activity cost pool. 2. Compute the company's predetermined overhead rate, assuming that the company uses a single plantwide, predetermined overhead rate based on direct labour-hours