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Tissue's Pty Ltd. manufactures two types of facial tissues, eucalyptus facial tissues and aloe vera facial tissues and currently it applies manufacturing overhead to all
Tissue's Pty Ltd. manufactures two types of facial tissues, eucalyptus facial tissues and aloe vera facial tissues and currently it applies manufacturing overhead to all units at the rate of $20 per labour hour. Production information is as follows: Eucalyptus Tissue Aloe Vera Tissue Prime cost $1.10 $1.57 Number of units produced 700,000 1,000,000 Labour hours 7,000 15,000 Number of setups 2.000 3,000 Number of moves 15,000 25,000 Machine hours 100,000 150,000 Number of inspections 40,000 40,000 The management accountant of Tissue's Pty Ltd. proposes that activity-based costing is more appropriate for the firm and suggests the firm's overhead can be identified with four activities: setting up equipment, materials handling, power and inspections. Below is the cost data for each activity: Setting up equipment: $500,000 Materials handling: $400,000 Power: $800,000 Inspections: $200,000 . Required: 1. Calculate the per unit product cost of eucalyptus tissues and aloe vera tissues using the company's current overhead costing method. 2. Calculate the per unit product cost of eucalyptus tissues and aloe vera tissues using the activity-based costing method. 3. Which overhead allocation method would you recommend Tissue's Pty Ltd. to use and why? Provide detailed explanations
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