Serene Brakes manufactures brake pads and other automotive components. The firm€™s CEO is very pleased that aggressive cost cutting appears to be paying off as the firm€™s cost per unit has decreased from last year to this year. She provides the following data in support of her claim:

Required:
a. Determine Serene€™s predetermined total overhead rate for the previous and current years. Assume Serene uses a normal costing system and applies overhead based on machine hours.
b. Determine the cost per unit for the previous year and the current year.
c. Explain why the reported cost per unit has decreased from the previous year to the current year. Would you accept the CEO€™s claim that costs have beenreduced?

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Previous Year Current Year Fixed overhead Variable overhead Budgeted machine hours Actual machine hours per unit Materials Direct labor cost per unit $500,000 500,000 $600,000 750,000 12,500 0.25 $45.00 10,000 0.25 $45.00