Problem 2 (Supplemental Problem #2) - Activity-based costing versus traditional costing Lovelace Company produces only two products: reading glasses and sunglasses. The company uses a normal cose system and overhead costs are currently allocated using a plant-wide overhead rate based on direct lahor hours Outside cost consultants have recommended that the company use activity-based costing to charge overhead to products. The company expects to produce 4,000 reading glasses and 8,000 sunglasses this year. Each pair of reading glasses requires two direct labor hours to produce and each pair of sunglasses requires one-half hour to produce. The direct material and direct labor costs per unit are as follows: Reading Glasses Sunglasses Direct Material (per unit) $ 30.00 $ 17.00 Direct Labor (per unit) 16.00 $ 4.00 Total 20 setups Estimated total factory overhead data for the year is as follows: Activity Budgeted Overhead Reading Glasses Production setups 80,000 5 setups Material handling 70,000 1,000 lbs. Packaging and shipping $ 120,000 4,000 boxes Total factory overhead 270,000 Sunglasses 15 setups 4.000 lbs. 2,000 boxes 5.000 lbs. 6,000 boxes Required (Traditional Method): 1. Using the traditional cost assignment method, calculate the plant-wide overhead rate: Plant-wide overhead rate: $ per direct labor hour 2. Under the traditional cost assignment method using the plan-wide overhead rate, how much is the overhead cost per unit for the: Reading glasses: per unit Sunglasses: 5 per unit 3. Using the traditional cost assignment method how much is the product cost per unit for the Reading glasses: $ per unit Sunglasses: S per unit *** Problem 2 is continued on the next page *** Required (ABC Method): 4. Using the Activity-based Costing (ABC) assignment method, calculate the activity cost rates for the following activities: (a) Setup costs: $ per production run (b) Materials handling costs: S per materials move C) Packaging and shipping costs: $ per shipment 5. Using the Activity-based Costing (ABC) assignment method how much is the overhead cost per unit for the Reading glasses: $ per unit Sunglasses: $_ per unit 6. Using the Activity-based Costing (ABC) assignment method how much is the product cost per unit for the Reading glasses: $ per unit Sunglasses: per unit