FireWorks produces mild-steel outdoor products, including two firepit models. The bulk of firepit sales come from their standard firepit a basic half-sphere design. FireWorks custom firepit involves innovative designs and some intricate cutting work and, although sales volume is low, custom firepits generate a significantly higher sales price. Increasingly, FireWorks has been struggling competitively on price with its standard product although its custom firepits are a flaming success. Currently, FireWorks uses a simple job-costing system and allocates overhead based on machine hours. An attempt is underway to introduce an activity-based job-costing system. Total budgeted costs in each indirect cost pool and the budgeted quantity of activity driver are as follows:

	Budgeted Overhead	Activity Driver	Budgeted Quantity of Activity Driver
Machine maintenance Product inspection Design	$50,000 10,000 30,000	Machine-hours Number of inspections Number of designs	5,000 250 100
Total	$90,000

Information related to two jobs for Standard and Custom firepits follows.

	Standard	Custom
Machine hours Number of inspections Number of designs Units produced	80 4 1 20	40 12 4 10

Required (show your work):

1. Compute the total overhead allocated to each job under a simple costing system, where overhead is allocated based on machine-hours. Also, compute the overhead cost per unit for each job.
2. Compute the total overhead allocated to each job under an activity-based costing system using the appropriate activity drivers. Also, compute the overhead cost per unit for each job.
3. Comment on your calculations. What problem with the simple costing system do you observe? Explain this problem.
4. Identify the cost hierarchy category/level for machine maintenance, product inspection, and design. How is the cost hierarchy helpful to FireWorks in managing its business?
5. Discuss three different ways FireWorks can apply ABC information in its decision making.