Problem 4-12 (Algo) Contrasting ABC and Conventional Product Cost [LO4-2, LO4-3, LO4-4]

Precision Manufacturing Incorporated (PMI) makes two types of industrial component partsthe EX300 and the TX500. It annually produces 64,000 units of EX300 and 12,900 units of TX500. The companys 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 companys two product lines is shown below:

	EX300	TX500	Total
Direct materials	$ 370,325	$ 166,550	$ 536,875
Direct labor	$ 124,000	$ 44,500	$ 168,500

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
EX300	TX500	Total
Machining (machine-hours)	$ 237,750	94,000	64,500	158,500
Setups (setup hours)	191,400	95	340	435
Product-level (number of products)	89,830	1	1	2
General factory (direct labor dollars)	70,770	$ 124,000	$ 44,500	$ 168,500
Total manufacturing overhead cost	$ 589,750

Required:

1-a. Compute the plantwide overhead rate that would be used in the companys 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.