TekSound, Ltd. makes two products, a radio with a built-in tape player and one with a built-in compact disc (CD) player. For the current year, TekSound has budgets sales of 50,000 CD units and 200,000 tape units. All production is sold to auto manufacturers for installation in new cars and trucks.

Question 12 TekSound, Ltd. makes two products, a radio with a built-in tape player and one with a built-in compact disc (CD) player. For the current year, TekSound has budgets sales of 50,000 CD units and 200,000 tape units. All production is sold to auto manufacturers for installation in new cars and trucks. Direct costs: CD unit Tape unit Direct materials 90 6 50 E Direct labor* (10 ( per direct labor hour) 20 E 20 E *Both products require two labor hours to complete, therefore the company plans to work 500,000 hours. Total manufacturing overhead costs for the current year are estimated to be 10,000,000 C. Required: 1. Compute the unitary product cost, assuming the company allocates overheads based on labor-hours. 2. The ABC project team has developed the following basic information: Estimated Expected activity Activity e cost drivers overhead cost CD Tape Total Material receipts (receipts) 2,000,000 E 1,800 3,200 5,000 Machine setups (setups) 2,600,000 E 3,000 1,000 4,000 Production orders (orders) 900,000 E 400 800 1,200 Product testing (tests) 3,400,000 E 16,000 4,000 20,000 Machine related tasks (machine hours) 1,100,000 E 300,000 700,000 1,000,000 Compute the unitary product cost, using activity-based costing. Comment the results. 3. Evaluate the benefits and limitations of activity-based costing