PROBLEM 6-11. Activity-Based Costing [LO 2] The Summit Manufacturing Company produces two products. One is a recreational whitewater kayak molded from plastic and designed to per form as a durable whitewater play boat. The other product is a high-performance competition kayak molded with high-tech fiberglass materials that are very light. The recreation kayak is uni- form in its dimensions and style. However, the competition kayak is custom designed to fit the individual (e.g., rocker and cockpit size are adjusted) Most of the sales come from the recreation kayaks, but recently sales of the competition kayaks have been increasing. The following information is related to the products for the most recent year Problems 245 Recreation Kayak Competition Kayak Sales and production (number of kayaks) Sales price per kayak Unit costs: 1,000 $650 200 $800 Direct materials Direct labor Overhead* 125 175 475 $ 175 225 125 175 525 $275 Total unit cost Gross profit Overhead costs: Building depreciation Equipment depreciation Materials ordering Quality control Maintenance and security Setup and drafting Supervision 35,000 35,000 25,000 20,000 20,000 35,000 40,000 $210,000 Total overhead Overhead rate based on direct labor dollars Total overhead $210,000 $150,000 Total labor ($125 x 1,000) ($125 x 200) Overhead rate $1.40 per direct labor dollar Victoria Mason, the president of Summit Manufacturing, is concerned that the traditional cost system used by Summit may not be providing accurate cost information and that the sales price of the competition kayak might not be enough to cover its true cost