Product Costing: Plantwide Overhead versus Activity-Based Costing Dixon produces machine parts as a contract provider for a large manufacturing company. Dixon produces two particular parts, shafts and gears. The competition is keen among contract producers, and Dixon's top management realizes how vulnerable its market is to cost-cutting competitors. Hence, having a very accurate understanding of costs is important to Dixon's survival. Dixon's president, Bob Hudson, has observed that the company's current cost to produce is $21.35, and the current cost to produce gears is $12.36. He indicated to the controller that be suspects some problems with the cost system because Dixon is suddenly experiencing extraordinary competition on shafts, but it seems to have a virtual corner on the gears market. He is even considering dropping the shaft line and converting the company to a one-product manufacturer of rears He asked the controller. George Coleman, to conduct a thorough cost study and to consider whether changes in the cost system are necessary. The controller collected the following data about the company's costs and various manufacturing activities for the most recent month: the controller was able to summarize the company's total manufacturing overhead into the following pools: Calculate Dixon's current plantwide overhead rate based on direct labor hours. Verify Dixon's calculation of overhead cost per unit of $12.82 for shafts and $6.10 for gears. Calculate the manufacturing overhead cost per unit for shafts and gears using activity-based costing, assuming each of the five cost pools represents a separate activity pool. Use the most appropriate activity driver for assigning activity costs to the two products. Comment on Dixon's current cost system and the reason the company is facing fierce competition for shafts but little competition for gears