Speciaky Products Inc., manufactures household items sold at trade shows. The items classified as cither Trinkets or Widgets, are manufactured on a common asembly line. Other than indirect labor (discused furnther below), the plant operates at full capucity. The current cost accounting system allocates all overhend to the two products on the basis of machine hours. The following information applies to the month of July: Trinkets Widgets 35 Total Number of Batches Produced 80 Number of Units 300 350 2750 1775 230 Number of Machine Hours 1600 175 160 Number of Inspections Number Engineering Changes 70 3 4 Direct Labor Salary & Benefits per Unit Direct Material per Unit S14 The General Ledger aho shows that the following amounts were spent on indirect resource: Indirect Labor Salaries and Benefits Computer Resources Uilities & Mic. Other $36,000 S12000 $25.000 S73,000 A. REQUIRED: Using the current cost accounting system, what cost per unit would be reported for the two products for the month of July? Trinket s unit Widget S /unit . The current method for allocating overhend to the products is no longer acceptable. The production manager has heard about activity-based costing and has assembled some information for use in refining the current system. With the help of the accounting department, the manager has been able to establish the following information related to the key activities that consume the indirect resources: The indirect labor time is spent in the following proportions: Re-tooling before each batch of products 25% Engineering Changes Inspecting Finished Products 25% Idle Time 25% 25% Plant management would like to lay off a number of employees to eliminate the idle time, but unsuccessful negotiations have prevented such action so far. Computer Resources are used entirely for production planning, and vary with the number of batches in a given period. Utilities and Misc. Other Costs are almost entirely associated with running the machines, and so they tend to vary with the number of machine hours. REQUIRED: Design an Activity-Based Costing System, bused on the provided information, and based on this system, detemine the cost per unit for each product line for July. Show your calculations on the next page. Trinket S. unit Widget S unit . REQUIRED: Does fhis fim have a problem with product cost cross subsidization? Explain briefly.