Slick Machinery Company makes machine parts for manufacturers of industrial equipment. Over the years, Slick Machinery Company has been a steady and reliable supplier of quality parts to small machine manufacturers. The owner of Slick Machinery once again was disappointed in the year-end income statement. Profits had again failed to meet expectations. The performance was puzzling given that the shop was operating at 100% capacity and had been for two years, since adding a large customer. This large customer is supplied 40% of the business. You have been hired as an outside accounting consultant to review the cost accounting system and have collected the following information:

Activities Total Activity Cost

Setups $209,000

Engineering 151,200

Programming 130,400

Machining 100,000

Rework 101,400

Inspecting 23,000

Resources Used Small Customer Job Large Customer Job

Setup hours 3 10

Engineering hours 2 6

Programming hours 1 8

Machine hours 2000 200

Defective units 20 10

Inspection hours 2 2

Prime costs $14,000 $1,600

Job size 1,000 units 100 units

Number of jobs orders during year 15 100

Overhead rate $14.30 per machine hour $14.30 per machine hour

1. Compute the unit cost currently being incurred for each customer type using machine hours to assign overhead cost.

2. Determine the sales price per unit and per customer type based on the current cost structure if the company follows the following markup: Markup cost to determine sales price = full manufacturing cost + 25%.

3. Determine the total amount of usage of each of the activities.

4. Compute the activity pool rates for each of the activities based costing to assign overhead cost.

5. Compute the unit cost for each customer job using activity based costing to assign overhead cost.