Cesar Ablang is a product manager for a Malaysian firm. His product is made in batches of 2,500 units each. In past years, his product cost was $14.50 per unit, including $8 in variable costs. The remainder is overhead, allocated based on the number of units. Cesar's firm recently implemented an ABC system. Under this system, the overhead allocated based on the number of units dropped to $3.50 per unit. In addition, each batch is allocated $3,500 in overhead and each variety of the product is allocated $14,500 for productlevel costs.
Suppose Cesar wants to increase the volume of operations to 15,000 units, comprising of 3 product varieties (7,000, 4,000 and 4,000 units each). For each variety, the maximum possible batch size will remain at 2,500 units.
Required:
a. Estimate the total cost for all 15,000 units under the "old" allocation system.
b. Estimate the cost for all 15,000 units using the ABC system.