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

Precision Manufacturing Inc. (PMI) makes two types of industrial component partsthe EX300 and the TX500. It annually produces 67,000 units of EX300 and 13,200 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	$	373,325		$	169,550		$	542,875
Direct labor	$	127,000		$	46,000		$	173,000

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

				Activity
Activity Cost Pool (and Activity Measure)	Manufacturing Overhead			EX300			TX500			Total
Machining (machine-hours)	$	195,600			97,000			66,000			163,000
Setups (setup hours)		225,600			110			370			480
Product-level (number of products)		156,620			1			1			2
General factory (direct labor dollars)		79,580		$	127,000		$	46,000		$	173,000
Total manufacturing overhead cost	$	657,400

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.