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Problem III: Activity Based Costing (35 points) Michelson Manufacturing Company manufactures two products: Drivers and Recovery Woods. In the current year the company has decided

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Problem III: Activity Based Costing (35 points) Michelson Manufacturing Company manufactures two products: Drivers and Recovery Woods. In the current year the company has decided to switch to activity based costing to determine their product costs. During June, 250 drivers and 350 recovery woods were produced and overhead costs of $64,000 were estimated. Other costs are as followed: Drivers $15 Direct Materials Direct labor Direct labor rate Selling price 3 hours $12 per hour $250 Recovery Woods $12 2 hours $12 per hour $185 The following information related to overhead costs was available: Activity Cost Driver Total Cost Materials handling Number of requisitions $24,000 Machine setups Number of setups 22,000 Quality inspections Number of inspections 18,000 The cost driver volume for each product was as follows: Cost Driver Number of requisitions Number of setups Number of inspections Drivers 300 110 190 Recovery Woods 450 140 210 Required: You must show all work to get any credit. a. Compute the overhead rate for each activity. b. Assign the manufacturing overhead costs for June to the two products using activity-based costing. c. How much overhead would be assigned to one driver and one recovery wood? d. Calculate the total unit cost for one driver and one recover wood and gross profit per unit? e. When a company switches from traditional costing to activity based costing what is the likely effect on unit cost of low-volume products and why? f. What is the effect on the overall net income when a company switches to activity based costing

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