Hampshire has always produced stick umbrellas. However, it is considering expanding its production to include collapsible umbrellas. This consideration has been spurred by Tours Today, a touring company that is interested in providing its customers with collapsible umbrellas imprinted with its logo. The management at Hampshire is currently working out a deal with the touring company to produce 3,000 collapsible umbrellas and believes it can sell those umbrellas for $14.00 each. Here are the costs that can be directly traced to this special order: Direct Materials: $9,300 Direct Labor Hours: 600 Hourly Rate of Direct labor: $8.00 In the traditional costing approach, overhead is applied at the rate of $24.60 per labor hour. This expansion in production will add additional overhead costs. The total overhead costs (assuming production of the stick and collapsible umbrellas) to include the cost pools and cost drivers are provided in Table 2. An alternative costing method that might benefit Hampshire is the implementation of activity-based costing (ABC). Hampshire would like to implement an ABC approach to analyze the production of this special order of collapsible umbrellas. The controller has assembled the following information: Stick Collapsible Units Sold 60,000 3,000 Selling Price $12.50 $14.00 Direct Material Cost per Unit $3 $3.10 Direct Labor Cost per Hour $7.50 $8.00 Variable Manufacturing Overhead $0.40 $0.40 Variable Selling Costs $1.10 $1.10 Labor Hours per Unit 0.2 0.2 Sales Orders 120 1 Purchase Orders 50 3 Production Runs 45 6 Material Moves 86 10 Machine Setups 130 6 Machine Hours 525 32 Inspections 200 10 Shipments 60 3 Table 1: Direct Cost Information and Activities Activity Activity Cost Activity Cost Driver Order Processing $35,000 Number of Sales Orders Purchasing $36,000 Number of Purchase Orders Material Handing $28,000 Material Moves Machine Setup $14,000 Machine Setups Production $99,000 Production Runs Assembly $80,000 Machine Hours Inspecting $11,000 Number of Inspections Shipping $7,500 Number of Shipments Table 2: Activity Cost Pools and Cost Drivers Another alternative to traditional costing and ABC is time-driven activity-based costing (TDABC). You will need to determine which of these three methods would be the best approach for the Hampshire Company. Using the information provided above, complete the following in the Hampshire Company Spreadsheet in order to assist you in responding to all components of Section IV: 1. Calculate the allocation rates for each cost driver using ABC. 2. Use the traditional costing approach to calculate the total cost and the unit cost of the stick and collapsible umbrellas. 3. Use ABC to compute the total costs and the unit cost for the stick and collapsible umbrellas. 4. Compute the difference between the product cost per stick and collapsible umbrellas using the unit cost that you computed with the traditional approach and the one that you computed using ABC.