Question 1: The Track corporation makes mountain bikes. They make several different models. Under the old cost system Track allocated overhead based on number of units produced. Overall, Track produces 150,000 bicycles each year. This year the production was higher 180,000 bicycles. Track decided to switch to Activity Based Costing as it was consistently selling its basic model for $800, which is less than any competitor was offering a similar model. The following data relates to the basic model: Budget Actual Annual Production 40,000 units 45,000 Direct Materials $400 per unit $420 Direct Labor $100 per unit $130 Firm-wide Manufacturing Overhead Cost Pools: Cost Pool Cost Driver Cost Budget Actual Material Ordering Number of purchase orders $400,000 $380,000 Machine Setup Number of setups $6,000,000 $7,200,000 Machine Processing Machine hours $14,000,000 $16,000,000 Rent & other fixed costs Direct labor costs $5,000,000 $6,500,000 Total overhead $25,400,000 $30,080,000 Annual Activity Cost Pool All Products Basic model Budget Actual Budget Actual Material Ordering 40,000 purchase orders 42,000 8,000 9,000 Machine Setup 6,000 setups 6,500 1,000 1,500 Machine Processing 50,000Mhr 70,000 15,000Mhr 18,000 Rent & other fixed costs $5,000,000 DL 6,000,000 ? ? Rquired: a. Calculate the unit cost per basic model under the old cost system, which applies actual costing. 2 b. Calculate the unit cost per basic model under the new ABC costing system, which applies normal costing.

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