Knick knack, Inc, manufactures two products: Odds and Ends. The firm uses a single, plantwide overhead rate based on direct-labor hours. Production and product-costing data are as follows: Production quantity Direct material Direct labor (not including setup time) Manufacturing overhead Total cost per unit Odds 1,000 units 5 48 30 (2 hr. at $15) 96 (2 hr, at $48) $ 166 Ends 5,000 units $ 60 45 (3 hr. at $15) 144 (3 hr. at $48) $ 249 Manufacturing overhead budget: Machine-related costs Setup and inspection Engineering Plant-related costs Total $450,000 188,000 90,000 96,000 $816,000 Predetermined overhead rate: Budgeted manufacturing overhead Budgeted direct-labor hours 5816,000 (1,000) (2) + (5,980) (3) = $43 per direct-labor hour Knickknack, Inc. prices its products at 120 percent of cost, which yields target prices of $199.20 for Odds and $298.80 for Ends. Recently, however, Knickknack has been challenged in the market for Ends by a European competitor, Bricabrac Corporation. A new entrant in this market, Bricabrac has been selling Ends for $220 each. Knickknack's president is puzzled by Bricabrac's ability to sell Ends at such a low cost. She has asked you (the controller) to look into the matter. You have decided that knickknack's traditional, volume-based product-costing system may be causing cost distortion between the firm's two products. Ends are a high-volume, relatively simple product Odds, on the other hand, are quite complex and exhibit a much lower volume. As a result, you have begun work on an activity-based costing system Corporation. A new entrant in this market. Bricabrac has been selling Ends for $220 each. Knickknack's president is puzzled by Bricabrac's ability to sell Ends at such a low cost. She has asked you (the controller) to look into the matter. You have decided that Knickknack's traditional, volume-based product costing system may be causing cost distortion between the firm's two products. Ends are a high-volume, relatively simple product Odds, on the other hand, are quite complex and exhibit a much lower volume. As a result, you have begun work on an activity-based costing system Activity Cost Pool Machine-related costs Setup and inspection Engineering Plant-related costs Cost Driver Machine hours Number of production runs Engineering change orders Square footage of space Budgeted Level of Cost Driver 9.898 hr. 40 runs 100 change orders 1,920 sq ft You have gathered the following additional information: Each odd requires 4 machine hours, whereas each end requires 1 machine hout Odds are manufactured in production runs of 50 units each. Ends are manufactured in 250-unit batches. Three-quarters of the engineering activity, as measured in terms of change orders, is related to Odds The plant has 1,920 square feet of space, 80 percent of which is used in the production of Odds Required: 1. Let each of the overhead categories in the budget represent an activity cost pool. Categorize each in terms of the type of activity Type of Activity Activity Cost Pool Machine-related costs Setup and inspection Engineering Plant-related 00615 nces 2. For each activity cost pool, compute a pool rate. Pool Rate per machine hour Activity Cost Pool Machine-related costs Setup and inspection Engineering Plant-related costs per run per change order per square foot 3. Determine the unit cost, for each activity cost pool, for Odds and Ends. (Round Round "Engineering" and "Plant-related costs" to 2 decimal places.) Odds Ends Machine-related costs Setup and inspection Engineering Plant-related costs 4. Compute the new product cost per unit for Odds and Ends, using the ABC system. (Rou answers to 2 decimal places.) Odds Ends Total cost per unit 5. Using the same pricing policy as in the past, compute prices for Odds and Ends. Use the product costs determined by the ABC system (Round your intermediate calculations and final answers to 2 decimal places.) Odds Ends New target prices 6. Show that the ABC system fully assigns the total budgeted manufacturing overhead costs of $816,000. (Round your intermediate calculations and final answers to 2 decimal places.) Odds Ends Manufacturing overhead costs per unit Machine-related Setup and inspection Engineering Plant-related Total overhead cost per unit Production volume Total overhead assigned Total = 7. Calculate the total amount of product cost distortion for entire product line caused by Knickknack's traditionat, volume-based costing system (Round your intermediate calculations to 2 decimal places. Negative amount should be indicated by a minus sign.) Odds Ends Total amount of cost distortion