Kerox Company manufactures two types of laser printers: monochrome and multifunction. Currently,

manufacturing overhead is allocated based solely on the consumption of direct labor hours. For the

upcoming quarter, the company expects to produce

2,000 units of monochrome printers and 1,300 units of multifunction printers

The following table outlines the selling price, material and labor cost for each unit of monochrome and

multifunction laser printers manufactured.

Selling Price Direct Material Direct Labor

Monochrome $110 $20 $5

Multifunction $395 $80 $22

The company is considering changing its current costing system to the ABC costing system. If it decides to use this method, it would separate the manufacturing support costs into three activities: handling purchase orders, inspecting and setting up production flow.

The budgeted manufacturing overhead cost expected for

purchase orders: $10,000

inspections: $6,000

product setups: $9,000

The following table indicates the cost allocation usage for each product.

Monochrome

Number of purchase orders 70

Number of inspections 50

Number of setups 75

Multifunction

Number of purchase orders 110

Number of inspections 250

Number of setups 375

Required:

1. Compute Activity rates for purchase orders, inspections and set ups (remember to use total expected activity for both products in computing the denominator)
2. For each product, calculate the manufacturing cost per unit under the ABC costing system.
3. Compute the profit margin (profit) for each product based on the total expected units to be produced and sold.