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Sealing Company manufactures only one product that is available in both a Deluxe model and a Regular model. The company has manufactured the Regular model
Sealing Company manufactures only one product that is available in both a Deluxe model and a Regular model. The company has manufactured the Regular model for years and the Deluxe model was recently introduced. The company is concerned about the accuracy of its costing system because profits are declining since the Deluxe model was introduced. Indirect production costs are assigned to the products using direct labor hours. For the current year, the company estimates $2,000,000 of indirect production costs and 40,000 direct labor hours. They expect to produce 5,000 units of the Deluxe model and 40,000 units of the Regular model. The Deluxe model requires 1.6 hours of direct labor time per unit and the Regular model requires 0.8 hours. Other costs are as follows: xe ula $112 Direct materials$150 Direct labor $16 Assume the company's indirect production costs can be traced to four activities with the following cost drivers Purchase orders (number of purchase orders) $84,000 Rework orders (number of rework orders)$216,000 Product testing (number of tests) Machining (number of machine hours) $450,000 $1,250,000 Deluxe Regular od OS Number of purchase orders Number of rework orders Number of tests Number of machine hours ode 400 200 600 600 6,000 30,000 4,000 20,000 Required: A) Assume direct labor hours are the only cost-allocation base. What is the cost to manufacture one unit of each model? B) Assume the activity-based costing method is used. What is the cost to manufacture one unit of each model
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