P18-32. Product Costing: Plantwide Overhead versus Activity-Based Costing (LO3, 4) Dixon produces machine parts as a contract provider for a large manufacturing company. Dixon produces two particular parts, shafts and gears. The competition is keen among contract producers, and Dixon's top management realizes how vulnerable its market is to cost-cutting competitors. Hence, having a very accurate understanding of costs is important to Dixon's survival. Dixon's president, Bob Hudson, has observed that the company's current cost to produce shafts i $21.35, and the current cost to produce gears is $12.36. He indicated to the controller that he suspects some problems with the cost system because Dixon is suddenly experiencing extraordinary competition on shafts, but it seems to have a virtual corner on the gears market. He is even considering dropping the shaft line and converting the company to a one-product manufacturer of gears. He asked the controller George Coleman, to conduct a thorough cost study and to consider whether changes in the cost system are necessary. The controller collected the following data about the company's costs and various manu- facturing activities for the most recent month: Shafts Gears 50,000 10,500 $24 . $12.82 $6.10 Materials and direct labor cost per unit................................... $8.53 $6.26 20 100 12,750 6,000 25,000 2,500 Production units. Selling price Overhead per unit (based on direct labor hours) $31.86 . Number of production runs Number of purchasing and receiving orders processed 10 40 Number of material moves. 50 40 The controller was able to summarize the company's total manufacturing overhead into the following pools