Outdoor Adventures is a contract provider that produces engine parts for small vehicles. Outdoor Adventures produces two parts, Part A and Part B. The competition is fierce among the contract providers of these products. Currently in the marketplace, Part A is experiencing extraordinary competition. On the other hand, Outdoor Adventures seems to have a corner on the market for product B. Because of this, Outdoor Adventures is considering dropping Part A to focus solely on Part B.

Jackie Chen, the controller, is very concerned there might be some problem with the current cost system.Jackie Chen has expressed his concern to the CFO, Lois Lane. Lois has instructed Jackie to conduct a thorough cost study.

Part A

Part B

Production Units

100,000

21,000

Selling Price

$58

$46

Overhead per unit(base on DL hours)

$12.82

$6.10

Materials and direct labor cost per unit

$17.06

$12.52

Number of production runs

20

40

Number of purchasing and receiving orders processed

80

200

Number of machine hours

25,500

12,000

Number of direct labor hours

50,000

5,000

Number of engineering hours

10,000

10,000

Number of material moves

100

80

Outdoor Adventures has monthly overhead (just manufacturing) of $1,410,000, divided into the following activity cost pools:

Setup costs

$60,000

Machine costs

350,000

Purchasing and Receiving costs

420,000

Engineering Costs

400,000

Materials handling cost.

180,000

Total

$1,410,000

Calculate the costs of A and B after allocating costs using direct labor hours as the only allocation basis. That is, compute a single rate for the entire plant.