Johnson Company uses a job-order cost system with overhead allocated to products on the basis of direct labor hours. The company manufactures two products, for which the following estimated information for next year is available.

		Standard		Unique
	Selling Price	$125		$195
	Number of Units Produced	15,000		5,000
	Prime Cost per Unit	$85		$125
	DLH per unit	2		1
	Machine hours (total)	2,000		2,000
	Units per batch	30		10
	Hours to setup a batch	4		6
	Number of moves per batch	2		3
	Engineering Support Hours (total)	1,000		2,000

Total OH for the current year was estimated to be $402,500 from the following activities:

	Activity	Annual Cost Activity Driver
	Material Handling	$30,000 # moves (per batch)
	Machine Set-ups	$100,000 # setup hours (per batch)
	Engineering Support	$150,000 engineering support hours
	Power for Machines	$80,000 # of machine hours
	Providing Space	$42,500 # of different products (standard and unique)
	TOTAL	$402,500

If the company adopts an ABC system, they will allocate Providing Space activity costs equally to each product line.

Requirements:

1. Estimate the cost per unit of the two products using the current cost system (e.g., DM+DL+MOH).

2. For each activity, calculate the drivers for each product line and in total (use Table 1 below).

3. For each activity, calculate the consumption ratio (use Table 1 below).

4. For each activity, calculate the activity rate (use Table 1 below).

5. Using activity rates or consumption ratios, calculate the cost per unit of the two products using ABC (that is, DM+DL+MOH).

6. How did the costs of the two products change and why?

7. Discuss how the company would go about improving profitability.

Activity	Total Cost	Activity drivers	Total drivers	Deluxe drivers	Regular drivers	Activity rate	Consumption ratios
Material Handling	$ 30,000	# of moves (per batch)
Machines Set-ups	$ 100,000	# setup hours (per batch)
Engineering support	$ 150,000	Engineering support hours
Power for Machines	$ 80,000	# of machine hours
Providing Space	$ 42,500	# of different products
TOTAL	$402,500

Table 1 (for Parts 2, 3, and 4)

Part 1:

Part 5:

Part 6:

Part 7: