Ontarlo, Incorporated, manufactures two products, Standard and Enhanced, and applies overhead on the basis of direct$-$

labor hours. Anticipated overhead and direct$-$labor time for the upcoming accounting period are $$800,000$ and $25,000$

hours, respectively. Information about the company's products follows.

Standard:

Estimated production volume, $3,000$ units

Direct$-$materlal cost, $$25$ per unit

Direct labor per unit, $3$ hours at $$12$ per hour

Enhanced:

Estimated production volume, $4,000$ units

Direct$-$material cost, $$40$ per unit

Dlrect labor per unit, $4$ hours at $$12$ per hour

Ontarlo's overhead of $$800,000$ can be identified with three major activities: order processing $($ $$150,000),$ machine

processing $($ $$560,000),$ and product inspection $($ $$90,000).$ These activitles are driven by number of orders processed,

machine hours worked, and inspection hours, respectively. Data relevant to these activitles follow.

Top management is very concerned about declining profitability despite a healthy increase in sales volume. The decrease in income is

especially puzzling because the company recently undertook a massive plant renovation during which new, highly automated

machinery was Installed$-$machinery that was expected to produce significant operating efficiencles.

Required:

Assuming use of direct$-$abor hours to apply overhead to production, compute the unit manufacturing costs of the Standard and

Enhanced products if the expected manufacturing yolume is attained.

$2$ Assuming use of actwity$-$based costing. oompute the unit manufacturing costs of the Standard and Enhanced products if the

expected manufacturing volume ls attalned.

Ontarlo's selling prices are based heavily on cost$.$

a$.$ By using direct$-$ibor hours as an appligation base, which product is overcosted and which product is uncercosted? Calculate the

amountof the cost cistortion for each product

b$.$ Is t possble that overcosting and undercosting fe cost distorton$)$ and the subsequent determination of seling prices are

contrbuthg to the companys profitwoes?