Mount Royal Company produces two types of jackets for equipment. Information concerning the two products follows:

Additionally, the following overhead costs are reported for the activities associated with the two products:
Setting up............................$60,000
Inspecting.............................45,000
Grinding..............................90,000
Receiving.............................25,000
Total................................$220,000
Required:
1. Calculate the total cost per unit of each jacket using a plantwide rate based on direct labour hours to assign overhead.
2. Calculate the total overhead of each jacket using activity-based costing methods appropriate to the information provided.
3. Which approach would you suggest that the company follow? Why?

Transcribed Image Text:

Jacket 1 Jacket 2 Units completed Direct labour hours 100 50 40 60 Grinding hours Number of setups Inspection hours Number of orders 20 30 5 15 25 Prime costs $145,000 $155,000