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PROBLEM 5-46 Ontario, Inc. manufactures two products, Standard and Enhanced,, and applies overhead on the basis of diect-labor hours. Anticipaied overhead and direct-labor time for

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PROBLEM 5-46 Ontario, Inc. manufactures two products, Standard and Enhanced,, and applies overhead on the basis of diect-labor hours. Anticipaied overhead and direct-labor time for the upcoming accounting period are SHOO.000 and 25000bours, respectively. Information about the company's prodacts Sollows Standard: Estimated production volume, 3,000 units DH Dinect-material cost, $25 per unit N Dinect labor per unit, 3 hours at $12 per hour Enhanced: Estimated production volume, 4,000 units Direct-material cost, $40 per unit Diect labor per unit, 4 hours at $12 per hour Ontario's overhead of $800,000 can be identified with three major activities: oeder processing ($150,000) machine processing ($560,000), and prodact inspection ($90,000). These activities are driven by namber of orders processed, machine hours worked, and inspection hours, respectively. Data relevant to these activities follow Orders Processed Machine Hours Workad Inspection Hours Standard 300 18,000 22.000 2,000 8,000 Enhanced 200 Total. 500 40,000 10,000 Top management is very concered about declining profitability despite a healthy increase in sales volume. The decrease in income is especially puzz ling because the company recently undertook a mas sive plant renovation during which new, highly automated machinery was installed-machinery that was expected to produce significant operating efficiencies. Required: 1. Assuming use of direct-labor hours to apply overhead to production, compute the unit manufactur- ing costs of the Standard and Enhanced products if the expected manufacturing volume is attained. 2. Assuming use of activity-based costing, compute the unit manufacturing costs of the Standard and Enhanced products if the expected manufacturing volume is atained. 3. Ontario's selling prices are based heavily on cost. a. By using direct-labor hours as an application base, which product is overcosted and which product is undercosted? Calculate the amount of the cost distortion for each product. b. Is it possible that overcosting and undercosting (ie., cost distortion) and the subsequent deter- mination of selling prices are contributing to the company's profit woes? Explain

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