$6.(40$ points$).$ Cessna Corporation manufactures two types of small private jet: Essential and Deluxe. Currently the company uses a traditional cost system and allocates manufacturing overhead $($ MOH $)$ using a plantwide overhead rate based on direct labor hours $($DLHs$).$

For $2023,$ the company's MOH costs included four major categories:

The company also had the following budgeted production and cost estimates for $2023$:

Product Data Per Unit

Production and Operating Budget Data

In your answers below show your calculations and relevant units.

Answer the following questions under the current traditional cost system.

a$.$ What is the OH allocation rate?

b$.$ The OH cost per unit allocated to the Essential Jet is: c$.$ The OH cost per unit allocated to the Deluxe Jet is:

d$.$ What is the Essential Jet cost per unit?

e$.$ What is the Deluxe Jet cost per unit?

f$.$ What is the profit margin of the Essential Jet?

g$.$ What is the profit margin of the Deluxe Jet?

h$.$ Anything wrong with the current cost system? Cessna is currently facing serious problem. A competitor just entered the market and offers a jet model comparable to its Essential Jet for $\backslash (\backslash$$ $1,500,000\backslash )-$ a price well below Cessna's price, and which Cessna's management deems to be below its own production costs. Cessna management is puzzled how come the competitor can offer the competing jet at such a low price, as they are known in the industry for their efficient and high$-$quality operations. Luckily, Cessna is doing great in the Deluxe Jet market. A brilliant consultant from NYU Stern $($who recently took the Managerial Accounting course$)$ suggested to Cessna's CEO that the company considers switching to an Activity$-$Based Costing $($ABC$)$ system, and then reassess the situation.

Answer the following questions under the $\backslash ($ A B C $\backslash )$ cost system.

i$.$ For each of the overhead cost pool in the first table above, select an appropriate cost driver and compute the ABCOH rates?

j$.$ The OH cost per unit allocated to the Essential Jet is:

k$.$ The OH cost per unit allocated to the Deluxe Jet is:

I. What is the Essential Jet cost per unit?

m$.$ What is the Deluxe Jet cost per unit?

n$.$ What is the profit margin of the Essential Jet? o$.$ What is the profit margin of the Deluxe Jet?

p$.$ Which actions should Cessna's managers consider in light of the ABC information?

q$.$ Suppose the company kept the current traditional cost system, but instead of allocating OH using direct labor hour $($DLHs$)$ the company switched to using machine hours $($MHs$).$ Select the correct answer below. Briefly, explain and support your answer.

The switch from DLHs to MHs would:

$1.$ Alleviate the cost distortion and over$/$under costing problem.

$2.$ Aggravate the cost distortion and over$/$under costing problem.

$3.$ Would not affect the cost distortion and over$/$under costing problem.

$4.$ We cannot tell without additional information.

r$.$ Suppose the company kept the current traditional cost system, but instead of allocating OH using direct labor hour $($DLH$)$ the company switched to using direct labor cost $($DL$\backslash$$$).$ Select the correct answer below. Briefly, explain and support your answer.

The switch from DLH to DL$\backslash$$ would:

$1.$ Alleviate the cost distortion and over$/$under costing problem.

$2.$ Aggravate the cost distortion and over$/$under costing problem.

$3.$ Would not affect the cost distortion and over$/$under costing problem.

$4.$ We cannot tell without additional information.