For many years, Sinclair Graphic Design has provided design and digital-printing services for indoor banners. The nylon banners, which come in a standard size, are used for a variety of purposes, including trade shows, sporting events, and other promotional activities. Three years ago, the company introduced a second printing and production service for outdoor banners that has become increasingly popular. The outdoor banners are a more complex product than the indoor banners, requiring weatherproof vinyl materials and a different printing process to improve the visibility of the text and graphics content. Moreover, outdoor banners are printed in smaller production runs because of less frequent orders; the setup of the printing equipment takes longer; and, since higher durability is needed to withstand the elements, more quality inspections are needed. Under the traditional costing approach, overhead costs are assigned to the products on the basis of direct labour-hours.

Despite the introduction of the new outdoor banners, profits have declined steadily over the past three years. Management is beginning to believe that the company's costing system may be at fault. Unit costs for materials and labour for the two products follow:

Indoor bannersOutdoor bannersDirect materials$14.50$32.60Direct labour ($19 per hour)$19$57

Management estimates that the company will incur $1,920,000 in overhead costs during the current year and that 16,000 indoor banners and 3,200 outdoor banners will be produced and sold.

Required:

1-a. Compute the predetermined overhead rate assuming that the company continues to apply overhead cost to products on the basis of direct labour-hours. (Round your answer to 2 decimal places.)

1-b. Using this rate and other data from the problem, determine the unit product cost of each product.(Round your answers to 2 decimal places.)

2. Management is considering using ABC to apply manufacturing overhead costs to products for external financial reports. Some preliminary work has been done, and the data that have been collected are displayed below. Using these data, calculate the predetermined overhead rate for each activity cost pool identified below. (Round your answers to 2 decimal places.)

Activity MeasureEstimated Total Overhead CostsIndoor

BannersOutdoor

BannersTotalOrder processing (orders received)$480,0008008001,600Print setup (number of batches)160,0001,2803201,600Artwork and graphic design (labour-hours)1,120,00011,20011,20022,400Quality control (number of inspections)160,0006406401,280Total overhead cost$1,920,000

3. Using the predetermined manufacturing overhead rates that you computed in (2) above, do the following:

a. Determine the total amount of manufacturing overhead cost that would be applied to each product using the ABC system. After these totals have been computed, determine the amount of overhead cost per unit of each product.

b. Compute the unit product cost of each product. (Round your answers to 2 decimal places.)