North-South Pole Company produces two products, a jacket suitable for adventure-seeking people (Spirit) and a jacket for less-adventurous people (Companion).

Production and Sales per year20,000 units (Spirit) & 5,000 units (Companion) Direct labour3.5 hours per unit (both)

Direct labour cost$32.00 per hour Estimated annual manufacturing overhead$285,000

Direct materials$180 per unit (both) Breakdown of overhead rates

Activity Cost Pools

Estimated

Overhead

Expected Use of Cost Drivers

per Activity

Activity Based

Overhead Rates

Machine set-up

$ 40,000

200

$? per set-up

Sewing

$135,000

37,500 machine hours (MH)

$? per MH

Inspection

$ 25,000

1000

$? per inspection

The breakdown between the two products for assigning overheads are as follows:

Product

No. of Set-ups

Sewing

Inspections

Spirit

105

23,500

500

Companion

95

14,000

500

Required:

From the following information, calculate the unit costs for "Spirit" and "Companion" using both the traditional method of costing (i.e. manufacturing overhead rate is based on units produced), and Activity based Costing.