Manhattan Company produces two products (F56 and F57), applying manufacturing overhead on the basis of direct labor hours. Each product requires 2 DLH/unit. Anticipated/estimated unit production costs (material, labor, and overhead) per unit and manufacturing volumes are as follows:

Required: A1a. If the purchase order activity is allocated using number of purchase orders, what is the purchase order cost per unit for each product?

A1b. It is often claimed that traditional costing systems over-cost high volume products and undercost low volume products. ABC systems are claimed to correct this mistake. a. What is the reasoning behind this claim? b. Using a traditional system is Manhattan over-costing its high volume product (F57) and under-costing its low volume product (F56)? If so, explain. If not, explain. A good answer requires supporting calculations.

Budgeted Estimated cost per unit* Product production volume F56 2,000 units $186.00 $175.00 F57 20,000 units Includes all material, labor and overhead costs per unit. Manhattan's overhead arises because of various activities. One major activity is purchase order processing; the budgeted cost for this activity is $70,000. The firm believes that the number of purchase orders processed is a key cost driver and expects the following activity for its products