Question

Trusty Computer Limited manufactures only three (3) products: a storage device, a laptop and a visual headset. The company uses the activity-based costing system with the four main cost drivers of activity noted in the table below. Any additional overhead costs are currently allocated using a plant-wide overhead rate based on direct machine hours. External cost consultants have recommended, however, that the company should switch to a traditional absorption costing system.

The company estimates that during 2022 it (the company) will produce 101,000 storage devices, 41,000 laptops and 85,000 visual headsets. To produce each storage device unit requires 1 direct labour hour and 0.5 hours of machine time. To produce each laptop unit requires 2 direct labour hours and 3.5 hours of machine time.To produce each visual unit requires 3 direct labour hours and 1 hour of machine time.

The direct material and direct labour costs included in the three products for 2022 are as follows:

Items	Storage Devices	Laptops	Visual Headset
Direct Material (per component)	$120	$180	$60
Direct Labour (per component)	$40	$80	$120

Management estimates that direct material costs will increase 10% in 2022 whilst direct labour costs will increase 5%.The budgeted (estimated) total factory overhead data for 2022 is given as:

Items	Budgeted Overhead ($)	Estimated Volume Level
Production Set-Ups	$13,480,000	80 Set-Ups
Material Handling	$9,570,000	25,000 kgs
Packaging and Shipping	$8,520,000	18,000 boxes
Transportation Trips	$5,250,000	800 trips
Total Factory Overhead	$41,970,000

Based on analysis of the consultants of the four overhead activities, it is estimated the production activities in 2022 will be as follows for the storage devices and laptops with balance to visual headsets:

Activity	Storage Devices	Laptops
Production Set-Ups	25 Set-Ups	20 Set-Ups
Material Handling	7,000 kgs	10,000 kgs
Packaging and Shipping	5,000 boxes	7,000 boxes
Transportation Trips	250 trips	400 trips

Required:

1. Calculate the cost of all products based on a traditional plant-wide rate using direct labour costs to assign overheads.
2. Cost the three products using an activity-based costing system.