Wolfgang Iser, the accountant of Starkuchen, wants to further examine the relative profitability of raisin cake and layered carrot cake. He questions the accuracy of the activity-based normal costing numbers. He notes that the 2008 actual manufacturing indirect cost was €256 256. This differs sizably from the €210 800 budgeted amounts. The 2008 actual indirect costs per activity area were as follows:

Activity area2008 actual costs

Mixing....................................€62400

Cooking................................... 83840

Cooling.................................... 12416

Creaming/icing........................... 36000

Packaging .................................61600

€256256

Required

1. Calculate the under- or over allocated manufacturing indirect costs in 2008 for:

a. Each of the five activity area indirect-cost pools

b. The aggregate of individual activity area indirect costs

2. Assume that Starkuchen allocates under- or over allocated indirect costs to individual accounts based on the allocated overhead component in that account. What are the pros and cons of using.

a. Five separate under- or over allocated adjustments (one for each activity area)?

b. One under- or over allocated adjustment for the aggregate of all activity area indirect costs?

3. Calculate the 2008 actual unit product cost for raisin cake and layered carrot cake using the information calculated in requirement 1a.

4. Comment on the implications of the product cost numbers in requirement 3 for Starkuchen's pricing decisions in 2009.