Exercise 9-28 Activity-Based versus Traditional Costing (LO 9-4, 5, 6)

Rodent Corporation produces two types of computer mice, wired and wireless. The wired mice are designed as low-cost, reliable input devices. The company only recently began producing the higher-quality wireless model. Since the introduction of the new product, profits have been steadily declining. Management believes that the accounting system is not accurately allocating costs to products, particularly because sales of the new product have been increasing.

Management has asked you to investigate the cost allocation problem. You find that manufacturing overhead is currently assigned to products based on their direct labor costs. For your investigation, you have data from last year. Manufacturing overhead was $1,183,000 based on production of 340,000 wired mice and 84,000 wireless mice. Direct labor and direct materials costs were as follows:

	Wired	Wireless	Total
Direct labor	$	1,043,000		$	379,000		$	1,422,000
Materials		800,000			677,000			1,477,000

Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows:

				Activity Level
Cost Driver	Costs Assigned	Wired	Wireless	Total
Number of production runs	$	550,000		40	15	55
Quality tests performed		493,000		12	17	29
Shipping orders processed		140,000		100	40	140
Total overhead	$	1,183,000

Required:
(a)	How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? (Round "Total Cost Per Unit" to 2 decimal places.)

(b)	How much overhead will be assigned to each product if direct labor cost is used to allocate overhead?What is the total cost per unit produced for each product? (Do not round intermediate calculations. Round "Overhead" to the nearest whole dollar and "Total Cost Per Unit" to 2 decimal places.)