Goldfinch, Inc. manufactures two types of products, Standard and Deluxe, and applies overhead on the basis of direct-labor hours. Anticipated overhead and direct-labor time for the upcoming accounting period are $710,000 and 20,000 hours, respectively. Information about the company's products follows.

Standard:

Estimated production volume, 2,500 units

Direct-material cost, $30 per unit

Direct labor per unit, 3 hours at $15 per hour

Deluxe:

Estimated production volume, 3,125 units

Direct-material cost, $45 per unit

Direct labor per unit, 4 hours at $15 per hour

Goldfinch's overhead of $710,000 can be identified with three major activities: order processing ($120,000), machine processing ($500,000), and product inspection ($90,000). These activities are driven by number of orders processed, machine hours worked, and inspection hours, respectively. Data relevant to these activities follow.

	Orders Processed	Machine Hours Worked	Inspection Hours
Standard	350	23,000	4,000
Deluxe	250	27,000	11,000
Total	600	50000	15,000

Management is very concerned about declining profitability despite a healthy increase in sales volume. The decrease in income is especially puzzling because the company recently undertook a massive plant renovation during which new, highly automated machinery was installedmachinery that was expected to produce significant operating efficiencies. Goldfinch bases its selling prices heavily on cost (use direct-labor hours as an application base).

Required:

Assuming use of a traditional costing system, compute the unit product costs of the Standard and Deluxe products if the expected manufacturing volume is attained (worth 6 points).

Assuming use of activity-based costing, compute the unit product costs of the Standard and Deluxe products if the expected manufacturing volume is attained (worth 6 points).

Based on your analysis completed in the first two steps, which product is overcosted and which product is undercosted? (worth 5 points)

Based on your analysis, which of the two methods is the more accurate one? Be sure to provide support for your decision (worth 3 points)