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Problem 3 (20 points) Use the following information for the questions below. Riley, Inc. produces two products (AA and BB). Recently, Riley has been concerned
Problem 3 (20 points) Use the following information for the questions below. Riley, Inc. produces two products (AA and BB). Recently, Riley has been concerned that their competitor (ACME Industries) is trying to drive them out of the BB market by selling the product at a very low price (\$29.99). If Riley matches that price, Riley's accountant is projecting significant financial difficulties. But, if they don't match the price, Riley is concerned that sales will decrease dramatically. By contrast, Product AA is doing nicely in the market and is a steady producer of strong company profit. Required: Use the data in Table 1 and Table 2 below to answer questions A through D on the next page related to the costs at Riley, Inc. Table 1. Overhead Cost and Activities Table 2. Material and Labor Cost, Production Volume, and Overhead Activities of Products AA and B for the Year 2023: Direct materials Direct labor Units completed Direct labor hours Number of setups Number of orders Machine hours Kilowatt hours The company's normal activity is 10,000 direct labor hours. A. Calculate the overhead pool rate if only labor hours are used to assign costs to products ( 2 points). B. In a "traditional" cost accounting method (where direct labor hours are used to allocate overhead costs) what would be the unit cost of a product produced in Job BB be? Show calculations or no points will be given. (6 points) C. If the activity drivers are used to allocate overhead costs, calculate the unit cost of a product produced in Job BB below. Show calculations or no points will be given. (12 points) In light of the ABC analysis, should Riley lower their price to $29.99 to compete with ACME in the Product BB market or should they drop product BB? (2 points)
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