Lauder Company manufactures and distributes various fixtures used primarily in new building construction. At the company's Bayside plant, Lauder produces two models of one widely used fixture designated by model names LC-20 and LC-50. Currently, the Bayside plant uses direct labor-hours to allocate manufacturing overhead costs to products.

The vice presidentmanufacturing (VP-M) at Lauder has recently been considering updates to the company's costing systems as a way to ensure that managers had the best information available for decision making. However, rather than update throughout the entire firm, the VPM and CFO agreed to test an ABC system. Because of its size and focus, the Bayside plant was selected for the experiment. An ABC study team, consisting of both plant and corporate employees was formed to propose an ABC system and compare the product costs with those reported by the current system. Based on the experiment, the executives at Lauder will decide whether to roll out the new cost system to the entire company.

The study team identified four cost pools into which the manufacturing overhead costs could be grouped. There was a great deal of discussion about both the pools and the cost drivers. The final system selected consisted of the following pools and drivers. The costs were based on the forecasts for the coming year.

Cost Pools	Costs	Activity Drivers
Material inspection	$ 396,000	Direct material cost
Assembly	2,210,000	Machine-hours
Equipment setup	790,000	Production runs
Packaging and shipping	420,000	Units shipped

Data for production of the two products at the Bayside plant for the coming year of operations follows:

	Products
LC-20	LC-50
Total direct material costs	$ 540,000	$ 180,000
Total direct labor costs	$ 420,000	$ 210,000
Total machine-hours	92,125	46,000
Total number of production runs	75	50
Number of units produced and shipped	240,000	60,000

All direct labor at the Bayside plant is paid $35 per hour.

Problem 9-64 (Static) Activity-Based Costing and Predetermined Overhead Rates (LO 9-3, 5, 6)

The study team decides to look more closely at the assembly activity and determines that it can be broken down into two activities: production and engineering. Production covers the costs of ongoing manufacturing while engineering includes those activities dealing with design changes, equipment calibration, and so on.

The costs attributed to production are $1,657,500, and the costs attributed to engineering are $552,500. After discussion with plant engineers, the team decides that although machine-hours are an appropriate cost driver for production, the best cost driver for engineering is setups because most of the work arises from changes in the way the product is run.

Required:

a-1. Compute the totals of the cost driver rates shown below.

a-2. What unit product costs will be reported for the two products if the revised ABC system is used?

\begin{tabular}{|l|l|l|} \hline Material inspection & & % of material dollars \\ \hline Production & & per hour \\ \hline Engineering & & per setup \\ \hline Equipment setup & & per setup \\ \hline Packaging and shipping & & per unit \\ \hline \end{tabular} \begin{tabular}{|l|l|l|} \hline & \multicolumn{1}{|c|}{ LC-20 } & \multicolumn{1}{c|}{ LC-50 } \\ \hline Direct material costs & & \\ \hline Direct labor cost & & \\ \hline Overhead: & & \\ \hline Material inspection & & \\ \hline Production & & \\ \hline Engineering & & \\ \hline Equipment setup & & \\ \hline Packaging and shipping & & \\ \hline Total costs & & \\ \hline \hline \end{tabular}