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 9-63 (Static) Activity-Based Costing and Predetermined Overhead Rates (LO 9-3, 5, 6)

Required:

What unit product costs will be reported for the two products in the coming year if the current cost system continues to be used?

What unit product costs will be reported for the two products if the ABC system is used?

\begin{tabular}{|c|c|c|c|c|} \hline & \multicolumn{2}{|c|}{ LC-20 } & \multicolumn{2}{|c|}{ LC -50} \\ \hline Direct labor-hours & & 12,000 & & 6,000 \\ \hline Direct material costs & $ & 540,000 & $ & 180,000 \\ \hline \multicolumn{5}{|l|}{ Direct labor cost } \\ \hline \multicolumn{5}{|l|}{ Overhead } \\ \hline \multicolumn{5}{|l|}{ Total costs } \\ \hline \multicolumn{5}{|l|}{ Number of units } \\ \hline Unit cost & & & & \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|c|} \hline & \multicolumn{2}{|c|}{ LC-20 } & \multicolumn{2}{|c|}{ LC-50 } \\ \hline Direct material costs & $ & 540,000 & $ & 180,000 \\ \hline Direct labor cost & & & & \\ \hline Overhead: & & & & \\ \hline Material inspection & & & & \\ \hline Assembly & & & & \\ \hline Equipment setup & & & & \\ \hline Packaging and shipping & & & & \\ \hline Total costs & & & & \\ \hline Number of units & & & & \\ \hline Unit cost & & & & \\ \hline \end{tabular}