Marconi Manufacturing produces two items in its Trumbull Plant: Tuff Stuff and Ruff Stuff. Since inception, Marconi has used only one manufacturing-overhead cost pool to accumulate costs. Overhead has been allocated to products based on direct-labor hours. Until recently, Marconi was the sole producer of Ruff Stuff and was able to dictate the selling price. However, last year Marvella Products began marketing a comparable product at a price below the cost assigned by Marconi. Market share has declined rapidly, and Marconi must now decide whether to meet the competitive price or to discontinue the product line. Recognizing that discontinuing the product line would place an additional burden on its remaining product, Tuff Stuff, management is using activity-based costing to determine if it would show a different cost structure for the two products. The two major indirect costs for manufacturing the products are power usage and setup costs. Most of the power is used in fabricating the products' components, while most of the setup costs are required in assembling them. The setup costs are predominantly related to the Tuff Stuff product line. A decision was made to separate the Manufacturing Department costs into two activity cost pools as follows: Fabrication: machine hours will be the cost driver. Assembly: number of setups will be the cost driver. The controller has gathered the following information. MANUFACTURING DEPARTMENT Annual Budget before Separation of OverheadTotal Product Line Tuff Stuff Ruff Stuff Number of units20,000 20,000 Direct-labor hours*2 hours per unit 3 hours per unit Total direct-labor cost $800,000Direct material$5.00 per unit $3.00 per unit Budgeted overhead:Indirect labor$ 24,000Fringe benefits 5,000Indirect material 31,000Power180,000Setup 75,000Quality assurance 10,000Other utilities 10,000Depreciation 15,000*Direct-labor hourly rate is the same in both departments.page 221 MANUFACTURING DEPARTMENT Cost Structure after Separation of Overhead into Activity Cost PoolsFabrication Assembly Direct-labor cost 75% 25% Direct material (no change) 100% 0% Indirect labor 75% 25% Fringe benefits 80% 20% Indirect material $ 20,000 $11,000 Power $160,000 $20,000 Setup $ 5,000 $70,000 Quality assurance 80% 20% Other utilities 50% 50% Depreciation 80% 20%Product Line Cost driver: Tuff Stuff Ruff Stuff Machine-hours per unit 4.46.0 Setups 1,000 272 Required: Assigning overhead based on direct-labor hours, calculate the following: Total budgeted cost of the Manufacturing Department. Unit cost of Tuff Stuff and Ruff Stuff. After separation of overhead into activity cost pools, compute the total budgeted cost of each activity: Fabrication and Assembly. Using activity-based costing, calculate the unit costs for each product. (In computing the pool rates for the Fabrication and Assembly activity cost pools, round to the nearest cent. Then, in computing unit product costs, round to the nearest cent.) Discuss how a decision regarding the production and pricing of Ruff Stuff will be affected by the results of your calculations in the preceding requirements.