ABC Company uses the traditional costing system using direct labor hours to allocate the manufacturing overhead to its two products X and Y. The total budgeted overhead cost for October is $220,000 with the budgeted direct labor hours of 40,000 hours. The company is considering adopting an activity-based costing system, and collects the following information for the month of October.

	Product X	Product Y
Production units	20,000	2,000
Direct materials cost per kg	$10.00	$10.00
Direct labor cost per hour	$10.00	$10.00
Direct labor hours (total)	34,000	6,000
Direct materials per unit	5kg	4kg

1. Overhead cost pool Overhead Total Activity

cost activity Consumption

Product Product

X Y

Machine setup $ 60,000 1,000 setups 300 700 Engineering change $ 80,000100 orders 20 80 order

Facility rent $ 80,000 1,000 sq. 300 700

feet

1. REQUIRED

Show ALLrelevant workings where necessary.

(1)Using the traditional costing system:

1. Compute the predetermined overhead rate (ensure that the rate is correctly labelled)(2 marks)
2. Compute the unit manufacturing costs for each product

(2)Using the activity-based costing system:

1. Compute the activity rates (ensure that the rates are correctly labelled).
2. Compute the unit manufacturing costs of each product.

(3)Which method produces the more accurate cost assignment? Why?