Whitestone Company produces two subassemblies, JR-14 and RM-13, used in manufacturing trucks. The company is currently using an absorption costing system that applies overhead based on direct-labor hours. The budget for the current year ending December 31, 20x1, is as follows:

WHITESTONE COMPANY
Budgeted Statement of Gross Margin for 20x1
	JR-14				RM-13				Total
Sales in units		5,000				5,000				10,000
Sales revenue	$	1,700,000			$	2,200,000			$	3,900,000
Cost of goods manufactured and sold:
Beginning finished-goods inventory	$	240,000			$	300,000			$	540,000
Add: Direct material		1,000,000				1,750,000				2,750,000
Direct labor		185,185				92,593				277,778
Applied manufacturing overhead*		544,025				272,013				816,038
Cost of goods available for sale	$	1,969,210			$	2,414,606			$	4,383,816
Less: Ending finished-goods inventory		240,000				300,000				540,000
Cost of goods sold	$	1,729,210			$	2,114,606			$	3,843,816
Gross margin	$	(29,210	)		$	85,394			$	56,184

*Applied on the basis of direct-labor hours:

Machining	$	424,528
Assembly		216,981
Material handling		56,604
Inspection		117,925
Total	$	816,038

Mark Ward, Whitestones president, has been reading about a product-costing method called activity-based costing. Ward is convinced that activity-based costing will cast a new light on future profits. As a result, Brian Walters, Whitestones director of cost management, has accumulated cost pool information for this year shown on the following chart. This information is based on a product mix of 5,000 units of JR-14 and 5,000 units of RM-13.

Cost Pool Information for 20x1
Cost Pool		Activity	JR-14				RM-13
Direct labor		Direct-labor hours		10,000				5,000
Machining		Machine hours		15,000				30,000
Assembly		Assembly hours		6,000				5,500
Material handling		Number of parts		5				10
Inspection		Inspection hours		5,000				7,500

In addition, the following information is projected for the next calendar year, 20x2.

	JR-14				RM-13
Beginning inventory, finished goods (in units)		800				600
Ending inventory, finished goods (in units)		700				700
Sales (in units)		5,100				4,900

On January 1, 20x2, Whitestone is planning to increase the prices of JR-14 to $355 and RM-13 to $455. Material costs are not expected to increase in 20x2, but direct labor will increase by 8 percent, and all manufacturing overhead costs will increase by 6 percent. Due to the nature of the manufacturing process, the company does not have any beginning or ending work-in-process inventories.

Whitestone uses a just-in-time inventory system and has materials delivered to the production facility directly from the vendors. The raw-material inventory at both the beginning and the end of the month is immaterial and can be ignored for the purposes of a budgeted income statement. The company uses the first-in, first-out (FIFO) inventory method.

Required:

2. Using activity-based costing, calculate the total cost for the following activity cost pools: machining, assembly, material handling, and inspection. (Round to the nearest dollar.) Then, calculate the pool rate per unit of the appropriate cost driver for each of the four activities.

3. Prepare a table showing for each product line the estimated 20x2 cost for each of the following cost elements: direct material, direct labor, machining, assembly, material handling, and inspection.

4. Prepare a budgeted statement showing the gross margin for Whitestone Company for 20x2, using activity-based costing.