Fairchild Inc. manufactures televisions that are designed for use in sports bars. The company had budgeted manufacturing overhead costs for the year as follows:
Type of Cost		Estimated Overhead
Electric Power		$ 2,500,000
Inspection		$ 1,500,000
Under a traditional cost system, Fairchild estimated the budgeted capacity for 40,000 machine hours. The company is considering a change to an activity-based costing system. As part of its consideration of the new costing system, Fairchild developed the following estimates:
Type of Cost		Estimated Cost Driver
Electric Power		50,000	kilowatt hours (KWH)
Inspection		10,000	inspections
Fairchild accumulated the following information regarding actual production of 2,000 units of Model #1003.
		Direct materials cost	$ 50,000
		Direct labor cost	$ 75,000
		Machine hours	10,000
		Direct labor hours	5,000
		Kilowatt hours	20,000
		Inspections	1,000
Based on the data, determine the total manufacturing costs for 2,000 units of Model #1003 under both traditional and ABC costing.
Now consider the per-unit product cost under both costing systems. If Fairchild were setting a sales price based on a 20 percent markup, how would profit be affected if the company did not change to an ABC system? Support your answer with calculations.
											Independent of your responses above, discuss some of the benefits and limitations of ABC. Which types of companies gain the most from implementing ABC?