WNY Inc. makes two types of industrial component parts$-$ the LEW$30$ and the VAU$40.$ Every year, it

produces $60,000$ units of LEW$30$ and $12,500$ units of VAU$40.$

The company$$s conven$$onal cost system uses a plantwide overhead rate based on direct labor dollars.

Addi$$onal informa$$on rela$$ng to the two product lines is shown below:

LEW$30$ VAU$40$ Total

Direct Materials $$366,325$ $$162,550$ $$528,875$

Direct Labor $$120,000$ $$42,500$ $$162,500$

The company is considering implemen$$ng an ac$$vity$-$based cos$$ng system based on four ac$$vi$$es

shown below:

Ac$$vity Cost Pool $($Ac$$vity Measure$)$ Manufacturing

Overhead

LEW$30$ VAU$40$

Machining $($machine$-$hours$)$ $$198,25090,00062,500$

Setups $($setup hours$)$ $$150,00075300$

Product$-$level $($number of products$)$ $$100,25011$

General factory $($direct labor dollars$)$ $$60,125$ $$120,000$ $$42,500$

Requirements:

$1.$ Using the Excel spreadsheet, compute the unit product cost, based on the conven$$onal cos$$ng

system.

$2.$ Using the Excel spreadsheet, compute the unit product cost, based on the ac$$vity$-$based cos$$ng

system.

$3.$ Explain why the results from the conven$$onal cos$$ng system is different from those from the

ABC system.

$4.$ WNY price its products based on a mark$-$up around $25\%.$ The unit price for LEW$30$ is $$18.$ The

unit price for VAU$40$ is $$34.$ The company has been losing bids to supply LEW$30,$ but winning all

bids to supply VAU$40.$ A consultant suggests that the conven$$onal cos$$ng system might have led

to mispricing. Do you agree? Please explain.