NetSpan, Inc., makes two lines of dog food: (1) Basic Chunks and (2) Custom Cuts. The Basic Chunks line is a dry food that is processed almost entirely by an automated process. Custom Cuts is a canned food made with real horsemeat. The slabs of meat are cut and trimmed by hand before being shoveled into an automated canning machine. Basic Chunks sells very well and is priced significantly below competitive brands. Sales of Custom Cuts have been on the decline, as the company has failed to keep the brand price competitive. Other information concerning each product line is provided as follows.

Basic ChunkCustom Cut

Number of units produced and sold per month5000020000

Direct material cost per unit$2$4

Direct labor cost per hour1212

Direct labor hour per unit0.010.10

The company currently allocates manufacturing overhead to each product line on the basis of direct labor hours. Budgeted manufacturing overhead per month is $24,600, whereas budgeted direct labor hours amount to 2,500 per month.

Healthy Hound recently hired a consultant to examine its cost accounting system. The consultant recommends that the company adopt activity-based costing to allocate manufacturing overhead. She proposes that the following cost pools and cost drivers be used.

Cost poolamount allocated cost drivertotal driver volume

Utility$8000kilowats hr100,000 kwh

Mainteance1000machine hrs.200 mh

Depreciation-plant& equp.15000sq. feet occupied80,000 sq. ft

Misc.600direct labor hrs.2500 DLH

The amount of driver activity corresponding to each product line is as follows.

Cost driverBasic chunkCustom Cuts

Kilowatts hrs.90,000 kwh10,000kwh

Machine hrs.160 mh40 mh

Square feet occupied60,000sq. ft20,000 sq. ft.

Direct labor hours500 DLH2000 DLH

Required:

1 Allocate manufacturing overhead costs to each product line using direct labor hours as a single cost driver. DLH

2. Allocate manufacturing overhead costs to each product line using the activity-based costing approach recommended by the consultant.

3. Compute the total monthly manufacturing costs assigned to each product line when activity-based costing is used to allocate manufacturing overhead