Problem $4-12($Static$)$ Contrasting ABC and Conventional Product Cost $[$LO$4-2,$ LO$4-3,$ LO$4-4]$

Precision Manufacturing Incorporated $($PMI$)$ makes two types of industrial component parts$$the EX$300$ and the TX$500.$ It annually produces $60,000$ units of EX$300$ and $12,500$ units of TX$500.$ The company$$s conventional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company$$s two product lines is shown below:

EX$300$ TX$500$ Total

Direct materials $ $366,325$ $ $162,550$ $ $528,875$

Direct labor $ $120,000$ $ $42,500$ $ $162,500$

The company is considering implementing an activity$-$based costing system that distributes all of its manufacturing overhead to four activities as shown below:

Activity Cost Pool $($and Activity Measure$)$ Manufacturing Overhead Activity

EX$300$ TX$500$ Total

Machining $($machine$-$hours$)$ $ $198,25090,00062,500152,500$

Setups $($setup hours$)150,00075300375$

Product$-$level $($number of products$)100,250112$

General factory $($direct labor dollars$)60,125$ $ $120,000$ $ $42,500$ $ $162,500$

Total manufacturing overhead cost $ $508,625$

Required:

$1-$a$.$ Compute the plantwide overhead rate that would be used in the company$$s conventional cost system.

$1-$b$.$ Using the plantwide rate, compute the unit product cost for each product.

$2-$a$.$ Compute the activity rate for each activity cost pool.

$2-$b$.$ Using the activity rates, compute the unit product cost for each product.