QUESTION3:

Abdullah and Rahman Corporation produces and sells two types of sofa pillow: Plain and fancy. Currently, Abdullah and Rahman uses a traditional costing system with direct labor hours as the allocation base. Actual hours for 20X3 were 20,000. In anticipation of developing an activity-based costing system, Abdullah and Rahman has identified the following cost pools and activities associated with pillow production:

Estimated Costs Actual Costs

for 20x4 for 20x3

Activity Driver

Material cutting Number of cuts $32,000 $27,330

Sewing machine setups Number of setups 54,000 49,600

Factory maintenance Number of direct labor hours 30,000 34,000

$116,000 $110,930

Direct costs for a plain sofa pillow are $1.25 for material and $2.00 for direct labor (15 minutes @ $8.00 per hour). Direct costs for a fancy sofa pillow are $1.50 for material and $4.00 (30 minutes @ $8.00 per hour). In 20x4, BCH expects to make 8,000 fancy pillows and 10,000 plain pillows. Those output levels will require 5 setups for fancy pillows and 10 setups for plain pillows. For the material cutting activity, the number of cuts is estimated at 10,000 for each type of pillow.

What will be the cost per unit for each type of pillow under traditional costing? (2 Points)