1. (i) Compute the total overhead allocated to each model under a simple costing system, where overhead is allocated based on direct labor-hours. (ii) What is the overhead cost per unit for each model? (5 points)
2. (i) Compute the total overhead allocated to each model under an activity-based costing system using the appropriate activity drivers. (ii) What is the overhead cost per unit for each model. (5 points)
3. Comment on your calculations. What problem with the simple costing system do you observe? Explain this problem. (5 points)
4. A one-time special order for 10 One-wheel cycles for a total price of $1,900 has been received. CycleWorks has enough spare capacity to fill this order. The order will require 2 setups, 1 design activity, and 40 direct labor-hours. In addition to the relevant MOH costs, the special order will incur $500 for direct materials and $600 for direct labor, plus an additional one-off freight cost of $200. Should CycleWorks accept this special order? (5 points)

Problem 2 (20 Points) CycleWorks produces innovative cycles, including one- or two-wheel models. The bulk of cycle sales come from their basic one-wheel model that sells for $225. CycleWorks' two-wheel model involves innovative designs and more small-batch production and sells for $350. Currently, CycleWorks uses a simple job-costing system and allocates overhead based on direct labor-hours. An attempt is underway to introduce an activity-based job-costing system. Total budgeted costs in each indirect cost pool and the budgeted quantity of activity driver are as follows: Budgeted Activity Driver Budgeted Quantity Overhead of Activity Driver Setups Design $16,000 50,000 Number of setups 400 Number of designs 125 Facility sustaining (fixed) costs 60,000 Direct labor-hours 5,000 Total $126,000 Information related to two jobs for One-wheel and Two-wheel models follows. Number of setups Number of designs Direct labor-hours Units produced (1) One-Wheel (2) Two-Wheel 4 12 4 40 20 10 1 80 -- 82.