r58 4 Wlustration 4 The Indiana Company produces only two products: a major computer part and cell phones. The company uses a normal cost system and overhead costs are currently allocated using a plant-wide overhead rate based on direct labor hours. Outside cost consultants have recommended, however, that the company use activity-based costing to charge overhead to products, The company expects to produce 4,000 computer parts and 2,000 cell phones in 2013. Each computer part requires two direct labor hours to produce and each cell phone requires one-half hour to produce. The direct material and direct labor costs included in the two products are as follows: Item Computer Part Cell Phone Direct Material (per unit) in ? 30 17 Direct labour cost per unit in 16 Budgeted (Estimated) Total Factory Overhead Data For 2013: Activity Budgeted Overhead in Estimated Volume Level Production Setups 80,000 20 setups Material Handling 70,000 5.000 lbs. Packaging and Shipping 120.000 6,000 boxes Total Factory Overhead 270.000 Based on an analysis of the three overhead activities, it was estimated that the two products would require these activities as follows in 2013 Activity Computer Part Cell Phone Total Production Setups 5 15 20 Material handling (lbs) 1000 4000 5000 Packaging and Shipping 4000 2000 6000 (boxes) Required: 1. Calculate the cost of each product using a plant-wide rate based on direct labor hours. 2. Calculate the activity cost rates for (a) setups, (b) material handling and (c) packaging and shipping. 3. Cost out the two products using an activity-based costing system