Q2 (30 MINUTES, 25 DIARKS) Menagerie Manufacturing manufactures 2 products, glass dogs and pewter seals. The firm currently uses a plant-wide overhead rate based on direct labour hours. Production and product costing data are as follows: Egg Seals Quantity produced (units) 1,000 5,000 Direct material '35 40.00 $ 60.00 Direct labour 2 hrs @ $15 $ 3000 311:3 @$15 $ 4500 Manufacturing overhead (Note 1) 2 hrs @ $48 $ 96.00 3 hrs @$48 $ 144.00 Total cost per unit 3 166.00 $ 249.00 Note 1: Calculation of predetermined overhead rate: Budgeted manufacturing overhead: Machine-related costs $ 45 0,000 Setup & inspection 180,000 Engineering 90,000 Plant-related costs 96,000 Total $ 816,000 Budgeted direct labour hours 12,000 Menagerie prices its products at 120% of cost. Recently, Menagerie has been challenged in the market for seals from a European competitor who has been selling seals for the low price of $220 per unit. Sandra Hay, Menagerie's President, is puzzled by the European company's ability to sell the product for less than Menagerie can produce it. She has asked you, the recently hired comptroller, to look into this matter. You vaguely remember hearing about ABC costing and how traditional costing doesn't necessarily give an accurate costing gure. The seals are a high volume, relatively simple product, while the glass dogs are a low volume, complex product. After a period of investigation, you determine that the following cost drivers should be used for the activity cost pools: Budgeted Level Activity Cost Pool Cost Driver of Cost Driver Machine-related costs Machine hrs. 9,000 Hrs Setup & inspection # production runs 40 Runs Engineering # change orders 100 change orders Plant-related costs Square Footage 1,920 square feet Other relevant production data is as follows: Other Production data: - Each dog requires 4 machine hours and each seal, 1 machine hour. - Dogs are produced in production runs of 50 units, seals in runs of 250. - 75% of the change orders relate to dogs. - 80% of the square footage relates to the production of dogs, 20% to seals. REQUIRED: Show all calculations. 1. Recalculate the unit cost of the dogs and seals using ABC costing. 2. Explain to the president why the change of costing systems had such an effect on the unit costs