Carson Weeks has been studying his departments profitability reports for the past six months. He has just

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Question:

Carson Weeks has been studying his department’s profitability reports for the past six months. He has just completed a managerial accounting course and is beginning to question the company’s approach to allocating overhead to products based on machine hours. The current department overhead budget of $850,000 is based on 40,000 machine hours. In an initial analysis of overhead costs, Carson has identified the following activity cost pools. Cost Pool Expected Cost Expected Activities Product assembly $ 350,000 40,000 Machine hours

Machine setup and calibration 280,000 2,000 setups

Product inspection 120,000 1,500 batches

Raw materials storage 100,000 500,000 pounds

Total: $ 850,000

Carson Weeks is taking the next step in his exploration of activity-based costing and wants to examine the overhead costs that would be allocated to two of the department’s four products. He has gathered the following budget information about each product. Driver Usage

Component 3F5 Component T76

Machine hours 1,000 10,000

Setups 40 20

Batches 20 10

Pounds of raw materials 10,000 10,000

Carson Weeks found that the budget included production of 500 units of Component 3F5 and 5,000 units of Component T76.

(a) Calculate the overhead cost per unit of Component 3F5 and Component T76 under traditional costing using machine hours as the overhead application base. Overhead cost per unit: Component 3F5______ Component T76_____

(b) Calculate the overhead cost per unit of Component 3F5 and Component T76 underactivity-based costing.

Overhead cost per unit: Component 3F5_____ Component T76_____