Hickory Company manufactures two products14,000 units of Product Y and 6,000 units of Product Z. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products Y and Z:

Activity Cost Pool

Activity Measure

Estimated overhead cost

Estimated Use

Driver

Machining

Machine-hours

$198,000

10,000

MHs

Machine setups

Number of setups

$86,400

180

setups

Production design

Number of products

$82,000

2

products

General factory

Direct labor-hours

$248,000

12,000

DLHs

Activity Measure

Product Y

Product Z

Machine-hours

6,800

3,200

Number of setups

50

130

Number of products

1

1

Direct labor-hours

7,800

4,200

Required:

a

(5 marks) Calculate the cost of a unit of product for products Y & Z using the plantwide overhead rate.

b

(5 marks) Calculate the cost of a unit of product for products Y & Z using ABC

c

(5 marks) Explain why the two product costs differ. How could the use of the POHR versus ABC affect the company's pricing strategy?