QUESTION 2

NobleIndustriesmanufacturestwomodels oftiffany-stylelamps, atable-topmodel andafloormodel.Summary data for the two products for the most recent fiscal year showed the following:

	Table-TopModel	FloorModel
Unitcosts:
Directmaterial	$28	$34
Directlabour(@$14/hour)	$7	$14
Manufacturingoverhead	?	?

Under the company's current costing, manufacturing overhead is allocated on the basis of direct labour-hours. Thecompanypresidentisconcernedthattheuseofasingleoverhead costpooldoesnotresulting accuratecosting of the two product linesand is wondering whether the company should implement activity-based costing (ABC).

The overheadforthe yearhasbeenestimatedata totalof$1,600,000.Furtheranalysis ofthe overheadcosts resulted in the following classification:

Materialshandling	$450,000
Setups	$750,000
Generalfactory overhead	$400,000

The company has identified the appropriate cost driver for each activity.Materials handling will be allocated using number of parts, setups will be allocated based on number of setups, and general factory overhead will be allocatedusingdirectlabour-hours.Thecompanyhasbudgetedtoproduce a totalof40,000unitsoftable-topand 80,000 units of the floor. Consumption of the cost drivers, based on this production volume, is estimated as follows:

CostDriver	Table-TopModel	FloorModel
Number of parts	160,000	240,000
Number of setups	500	250
Directlabour-hours	20,000	80,000

The companycurrentlypricesitsproducts byaddinga 40%markuptothe totalmanufacturingcost. But youare not required to calculate prices for the two products.

REQUIRED:

1. Computethe budgetedoverhead allocationrateandthecostperunitofeachmodeloflampsunder the current system

2. Computetheper-unitcostofbothmodelsoflampsusinganABCsystem