Objective: This part of the problem set is designed to improve your understanding of the difference between traditional job-order costing and activity based costing.

Background: Pat is considering the manufacture of a new product that would match the design of the bookcase: a desk with the design shown in figure 2 [emitted]. In the month of May, Pat would like to produce 50 more bookcases and 30 desks.

Desk Design and Production Requirements: While the desk does match the bookcase as to the wood used and the trim details, it is a considerably more complex product. Pat breaks the design down to the components and manufacturing activities that are required and notes the following:

1. The desk requires two types of wood to construct. Plywood is required for the sides and back of the drawers while solid wood is required for all surface pieces. In contrast, the bookcase is made only of solid wood.

2. The wood to be cut, trimmed, routed, and sanded for the desk will require significant machine work because of the drawers and slide-out computer keyboard tray. For each desk, additional machine timefor all processes (cutting, routing, and sanding) is required.

3. The time and effort to configure the machines to cut and rout the wood pieces is significantly higher. Special jigs are required on the saws to cut dovetail joints to construct the drawers. In addition, more routing configurations are needed for the varied pieces of wood.

4. Compared to the bookcase, the desk has much more hardware. In addition to woodscrews, brackets are needed to hold the pieces together and a total of ten metal ball-bearing drawer slides are needed for the drawers and the slide-out computer keyboard tray.

Product Costing - Traditional Job-Order Costing: Pat arranges a meeting with you and the two of you assemble the following information about the costs and times to produce the 50 bookcases and 30 desks. Each bookcase should require 2.5 direct labor hours to produce and each desk should require 6.0 direct labor hours to produce. The labor rate is $12.00 per hour. The wood and materials cost for each bookcase is $18 and $68 for each desk. After discussing the nature of the processes required to produce required to produce both bookcases and desks you determine that the estimated overhead will be $6,100.

Product Costing - Activity-Based Costing: Pat is perplexed. The cost of the bookcase you calculated in requirement 4 is far higher than the cost calculated in the prior problem of this problem set even though there have been no changes in the design or production process of the bookcase. You explain to Pat that because of the differences in the manufacturing process required by the desk that perhaps a more refined system for allocated overhead is needed to provide more accurate costs. The two of you discuss the possibility of using an activity-based costing system based on the following activities and related data for the 50 bookcases and 30 desks:

Acitivity Cost Pool	Estimated Overhead Costs	Bookcase Estimated Activity	Desk Estimated Activity	Total Expected Activity
Material Handling	$2,000	500 Components	1,500 Components	2,000 Components
Machining	$3,000	400 Machine Hours	600 Machine Hours	1,000 Machine Hours
Machine Set Up	$1,100	10 Set Ups	30 Set Ups	40 Set Ups
Total	$6,100

Questions 5-6:

5. Calculate the activity rate for each cost pool:

Material Handling:

Machining:

Machine Set Up:

6. Product cost per unit for bookcases:

Product cost per unit for desks:

[Please show your calculations]