7. Which allocation method (traditional or activity-based costing) would produce a more accurate product cost? Explain your answer. E4-22A Reassess product costs using ABC (Learning Objective ) Reynolds, Inc., manufactures only two products, Medium (42-inch) and Large (63-inch) TVs. To generate adequate profit and cover its expenses throughout the value chain, Reynolds prices its TVs at 300% of manufacturing cost. The company is concerned because the Large model is facing severe pricing competition, whereas the Medium model is the low-price leader in the market. The CEO questions whether the cost numbers generated by the accounting system are correct. He has just learned about ABC and wants to reanalyze this past year's product costs using an ABC system. Information about the company's products this past year is as follows: Total direct material cost:$669,000 Total direct labor cost: $225,000 Production volume: 3,160 units Large (63-inch) TVs Total direct material cost: $1,270,000 Total direct labor cost: $385,000 Production volume: 4,160 units Currently, the company applies manufacturing overhead on the basis of direct labor hours. The company incurred $824,000 of manufacturing overhead this year and 26,500 direct labor hours (9,900 direct labor hours making Medium TVs and activities that generate manufacturing overhead costs Materials Handling ($160,000); driven by number of material orders handled Machine Processing ($564,000); driven by machine hours Packaging ($100,000); driven by packaging hours The company's only two products required the following activity levels during the year: Material Orders Machine Hours 21,400 23,000 Packaging Handled 300 240 Hours 4,140 6,060 Medium Large