Exercise A Quality Sound Corporation produces two types of compact discs (CDs), one is to install on touring bicycles and the other is a high-grade product for home and car use. The touring bicycles CDs are designed for durability rather than accurate sound reproduction. The company only recently began producing the high-grade disc. Management believes the accounting system may not be accurately allocating costs to products.

Management asked you to investigate the cost allocation problem. You found that manufacturing overhead is currently assigned based on the direct labor costs in the products. For your investigation, you are using data from last year. Last years manufacturing overhead was $440,000 based on production of 320,000 touring bicycle CDs and 100,000 high-grade CDs. Direct labor and direct materials costs were as follows:

	Touring bicycle	High grade	Total
Direct labor	$180,000	$60,000	$240,000
Materials	120,000	112,000	232,000

Management believes three activities cause overhead costs. The cost drivers and related costs for your analysis are as follows:

		Activity	Level
Cost drivers	Cost assigned	Touring bicycle	High grade	Total
Number of production runs	$200,000	40	10	50
Quality tests performed	180,000	12	18	30
Shipping orders processed	60,000	100	50	150
Total overhead	$440,000

1. How much of the overhead would be assigned to each product if the three cost drivers are used to allocate overhead? What would be the cost per unit (including materials, labor, and overhead) for each product if overhead is assigned to products using the three cost drivers?
2. How much of the overhead would be assigned to each product if direct labor costs had been used as the basis for allocating overhead to each product? What would be the cost per unit (including materials, labor, and overhead) for each product if overhead is allocated to products using direct labor cost as the allocation base?