The ODonnell Company uses volume-based costing system.

They apply overhead costs based on direct labor hours at $250 per direct labor hour. The company is considering adopting an activity-based costing system with the following data:

Activity Area	Cost Driver	Cost Driver Rate
Materials handling	Number of parts	$1.20
Lathe work	Number of turns	0.30
Milling	Number of machine hours	16.00
Grinding	Number of parts	1.25
Testing	Number of units tested	12.00

The two jobs processed in the month of June had the following characteristics:

	Job A	Job B
Direct materials costs	$10,000	$50,000
Direct labor costs	$1,000	$10,000
Number of direct labor hours	40	400
Number of parts	500	2,000
Number of turns	25,000	50,000
Number of machine hours	140	1,000
Number of units in each job (all tested)	15	200

Required:

1. Compute the unit manufacturing cost of each job under the firm's current volume-based costing system.

2. Compute the unit manufacturing cost of each job under the activity-based costing system.

3. Compare the unit manufacturing cost for Jobs A and B computed in requirements 1 and 2. (a) Why do the two cost systems differ in their total cost for each job? (b) Why might these differences be important to the Company?