Knickknack, Inc. manufactures two products: odds and ends. The firm uses a single, plant wide OH rate based on DL hours, Production and product-costing data are as follows: Odds Ends Production Quantity DM DL (not including set-up time) MOH 1,000 $160 120 (4 hr@ $30) 5,000 240 180 (6 hr@ $30) 38414 hr@ 965766h@s96l Total cost per unit $664 $996 MOH budget $1,800.000 720,000 360,000 384.000 Machine-related costs Setup and Inspection Plant-related Costs Total $3,264.000 (predetermined rate $3.264,000/ (1,0004 (5,000 6)$96 per hour) Knickknack, Inc. prices its products at 120% of cost, which yields target prices of $796.80 for odds and $1,195.20 for ends. Recently, however, Knicknack 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 $880 each. Knickknack's president is puzzled by Bricabrac's ability to sell ends at such a low cost She has asked you to look into the matter. You have decided that Knicknack's traditional volume-based product costing system may be causing the cast distortion between the fhrm's two praducts. Ends are a high volume, relatively simple product. Odds, on the other hand, are quite complex and exhibit a uch lower volume. You will try ABC. 1. Let each of the OH categories in the budget represent an activity cost pool 2. The following cost drivers have been identified for the four activity cost pools 18,000 hr Machine related casts Setup and Inspection Engineering Plant-related costs Machine hours # of production runs 80 runs Eng. change orders 200 change orders Square footage 3,840 sq. ft. You have gathered the following information: 1. Each odd requires 8 machine hours, whereas each end requires 2 machine hours 2. Odds are manufactured in production runs of 25 units each. Ends are in 125 unit batches 3. 3/4 of the engineering activity as measured by change orders are related to odds. 4. The plant has 3,840 sq.ft. of space, 80% of which is used in the production of odds. A. Determine the unit cost, for each activity pool, for odds and ends B. Compute the new product cost per unit for odds and ends using ABC. C. Show how the price was distorted under the traditional system