The cost accountant of L. Rosales, Inc. is considering to use the ABC system in determining the cost of its products. At present, the company uses the traditional costing systems wherein factory overhead costs are allocated based on direct labor hours. This cost accountant believes that the present system may be providing misleading cost information, hence, the plan to change to ABC system.

For the coming period, the company is planning to use 5,000 direct labor hours, and its total budgeted factory overhead amounts to P 90,000, broken down as follows:

Activity Cost Driver Budgeted Activity Budgeted Cost

1. Sets up cost Number of set ups 40 P 20,000

2. Production monitoring Number of batches 20 40,000

3. Quality control Number of inspections 1,000 30,000

Total overhead costs P 90,000

Projected data for one of the companys products, Product X for the coming period as follows:

Production and sales 1,000 units

Direct labor hours 2,000 hours

Units per batch 500

Number of set ups 4

Number of inspections 200

Direct materials cost P 10 per unit

Direct labor rate P 20 per hour

1. If the company will use the traditional full cost (manufacturing costs) system, the cost per unit of product X for the coming period will be

a.) P 36

b.) P 50

c.) P 86

d.) P 68

2.) If the company will use ABC system, the cost per unit of Product X for the coming year will be

a.) P 50

b.) P 86

c.) P 12

d.) P 62