There are two products manufactured, A32 & Y41. The company has used a simple plantwide manufacturing overhead cost rate based on direct labour hours for the past couple of years.

It was suggested that the company may be able to assign overhead costs to products more accurately by employing an activity-based costing system that relies on a separate rate for each manufacturing activity that causes overhead costs.

Data from last year

Item A32 Y41 Units produced and sold 50,000 100,000 Direct labour hours used 100,000 300,000 Direct Labour cost $1,000,000 $4,500,000 Number of times handled 40,000 20,000 Number of parts 12,000 8,000 Number of design changes 2,000 1,000 Number of product setups 8,000 6,000Cost Pool Activity Costs Handling $3,000,000 Number of parts $2,400,000 Design changes $3,300,000 Setups $2,800,000 Total $11,500,000