Nemo Inc. manufactures two products for the commercial fishery. Each year, the company produces 80,000 units of Doris and 10,000 units of Marlin. The Marlin product is more complex to manufacture, requiring four hours of direct labour per unit, while the Doris product requires only two hours.

Unit Costs

Doris

Marlin

Raw materials

125 $

175 $

Direct labour

40

80

The company has estimated the annual production manufacturing overhead for the two products, based on four activities, to be as follows

Activities

Manufacturing Overhead

Number of activities for Doris

Number of activities for Marlin

Total number of activities

Machine start-up

450 000 $

1 500

3 000

4 500

Issuance of purchase orders

120 000 $

800

200

1 000

Quality inspections

210 000 $

2 000

1 000

3 000

Issuance of maintenance requests

300 000 $

700

800

1 500

Total

1 080 000 $

Currently, manufacturing overhead is allocated based on the number of units produced.

Work to be done:

1) Calculate the amount of manufacturing overhead allocated to each product using the traditional (full cost) method. (2pts)

2) Calculate the manufacturing cost per unit of the Doris model and the Martin model based on the current method used by the company (traditional method). (3pts)

3) Calculate the amount of manufacturing overhead allocated to each of the products using the activity-based costing (ABC) method. (12 pts)