5-2B - Comparing Traditional Costing and Activity Based Costing You're in Hot Water Inc, manufactures Jacuzzi hot tubs. The company produces two models, the "Basic" and the "Superjet" which promises a jet power setting that "borders on cruel". Since the introduction of the Superjet, the company's profits have been faltering, despite increased sales. The company's senior accountant believes that the costing system may be causing problems. The company uses direct-labour hours as the basis for applying overhead. Overhead is estimated to be $300,000 The following cost data is known: Superjet $1200 Direct Materials Direct Labour ($15 per hour) Number of units produced Basic $700 60 600 units 100 units The CFO wishes to explore an activity-based costing system Activity (Cost Driver Estimated MOH Assembly (Labour Hours) Quality control (Inspection Hours) Machining (Machine Hours) Parts Admin (Number of Parts) $60,000 75,000 25,000 140 OK! $300.000 Expected Activity Total Basic 3.000 2.400 800 600 40,000 30,000 500 Supe 600 200 10,000 400 100 Required: a) Under the traditional costing method: i. Compute the predetermined overhead rate. ii. Determine the unit cost of cach product. b.) Under activity based costing: i. Compute the activity rates for each activity ii. Determine the expected unit cost of each product. c) Compare and comment on your answers from parts a) and b) above d) II ABC produces more accurate cost data, why is it not more widely used