Requirements 1. Prepare a schedule calculating the unit cost and gross margin of part 24Z2 using the activity-based costing approach. Use the cost drivers given as cost-allocation bases. 2. Based on the ABC results, which course of action would you recommend regarding the proposal by Honda? List the benefits and costs associated with implementing an ABC system at O'Donnell. O'Donnell Company is an automotive component supplier. O'Donnell has been approached by Honda's Ohio plant to consider expanding its production of part 24Z2 to a total annual quantity of 2,600 units. This part is a low-volume, complex product with a high gross margin that is based on a proposed (quoted) unit sales price of $8.00. O'Donnell uses a traditional costing system that allocates indirect manufacturing costs based on direct-labor costs. The rate currently used to allocate indirect manufacturing costs is 500% of direct-labor cost. This rate is based on the $3,367,000 annual factory overhead cost divided by $673,400 annual direct-labor cost. To produce 2,600 units of 24Z2 requires $7,280 of direct materials and $1,560 of direct labor. The unit cost and gross margin percentage for part 24Z2 based on the traditional cost system are computed as follows: (Click the icon to view the traditional cost data.) The management of O'Donnell decided to examine the effectiveness of their traditional costing system versus an activity-based costing system. The following data have been collected by a team consisting of accounting and engineering analysts: (Click the icon to view the ABC cost data.) Read the requirements. (...) Requirement 1. Prepare a schedule calculating the unit cost and gross margin of part 24Z2 using the activity-based costing approach. Use the cost drivers given as cost-allocation bases. (Round the unit cost to two decimal places.) Annual Cost Cost/Activity Center: Cost-Allocation Base Annual Cost Driver Cost per Driver Activity Unit Quality: Pieces scrapped $ 752,000 Production scheduling: Setups 33,000 Setup: Setups 360,000 Shipping: Shipping administration: Containers shipped Shipments 520,000 52,000 Production: Machine hours 1,650,000 $ 3,367,000 Total indirect cost Data table - X Data table Per unit Activity Center Total (/2,600) Quality Direct material $ Direct labor 7,280 $ 1,560 2.80 0.60 7,800 3.00 Indirect production: (500% of direct labor) $ 16,640 Total cost $ 6.40 8.00 Sales price quoted Production scheduling Setup Shipping Shipping administration Production Total indirect production cost $ 1.60 Gross margin 20.0 Activity Center: Cost Drivers Gross margin percentage % Print Done Quality: Number of pieces scrapped Production scheduling and setup: Number of setups Shipping: Number of containers shipped Shipping administration: Number of shipments Production: Number of machine hours Factory Overhead Costs (Annual) 752,000 33,000 360,000 520,000 52,000 1,650,000 $ 3,367,000 Annual Cost-Driver Quantity 16,000 300 65,000 1,300 15,000 The accounting and engineering team has performed activity analysis and provides the following estimates for the total quantity of cost drivers to be used to produce 2,600 units of part 24Z2: Cost Driver Pieces scrapped Setups Containers shipped Shipments Machine hours Cost-Driver Consumption 140 5 9 6 18 Print Done