Question text

Stylish Company produces three types of Smart Watches Basic, Smart, and Luxury and operates at capacity. Data related to the three products are presented here:

	Basic	Smart	Luxury
Annual production in units	100,000	160,000	40,000
Direct material costs	$700,000	$1,200,000	$1,000,000
Direct manufacturing labor costs	$900,000	$1,500,000	$1,000,000
Direct manufacturing labor-hours	20,000	50,000	60,000
Machine-hours	10,000	18,000	8,000
Number of production runs	70	100	100
Inspection hours	3,000	6,000	4,000

Total manufacturing overhead costs are as follows:

	Total		Cost Driver
Machining costs	$5,300,000		Machine-Hours
Setup costs	1,450,000		Production-Runs
Inspection costs	900,000		Inspection-Hours

Stylishs simple costing system allocates overhead costs to its products based on manufacturing labor hours.

Required:

1. Calculate the manufacturing overhead cost per unit for each product using the simple costing system.

2. Compute the manufacturing cost per unit for each product using the Activity-Based-Costing system.

3. How might Stylish managers use the new cost information from its activity-based costing system to better manage its business?