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Sammara Company produces two different products ? Product A and Product B ? with the following prime cost per unit information. Yaqulz uses a traditional

Sammara Company produces two different products ? Product A and Product B ? with the following prime cost per unit information. Yaqulz uses a traditional volume?based costing system in which direct labour hours are the allocation base. The estimated manufacturing overhead costs and the direct labour hours for the year are $400,000 and 100,000 hours respectively. The company gathered the following information on the two products.

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Yaqulz is considering switching to an ABC system by splitting its manufacturing overhead cost across three activities: Setup, Production, and Finishing. The cost of each activity and usage of the activity drivers are as follows:

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Yaqulz manufactures 10,000 units of Product A and 5,000 units of Product B per month.

(a) Using the traditional costing system, calculate the product cost per unit for both Product A and Product B.

(b) Using the Activity Based Costing system, calculate the estimated product cost per unit for Product A and Product B.

(c) Compare the costs of Product A and Product B under a traditional and an activity based costing system. Explain why the traditional and the activity based

costing system differ in the cost of Product A and Product B.

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