PART A: Zoo Company makes two products, Basic and Deluxe. In the past, the company always used Traditional Costing. This year, it is ALSO going to calculate cost per unit using Activity-Based Costing. Relevant information for the current year is as follows:

Basic Deluxe Yet to Allocate

Direct material costs (traceable) $150,000 $300,000

Direct labor costs (traceable) $ 50,000 $100,000

Machining Activity Overhead $375,000

Setup Activity Overhead $120,000

Inspection Activity Overhead $105,000

Number of Units to be Made 50,000 units 100,000 units

Machine Hours (related to machining) 25,000 hrs. 50,000 hrs.

Number of Production Runs (related to setups) 50 runs 50 runs

Inspection Hours (related to inspections) 1,000 hrs. 500 hrs.

REQUIRED:

(#1) Since the company has three activities, what are the three overhead application rates the company would use for activity-based costing? (Be sure to label the rates appropriately.)

(#2) Using activity-based costing, what was the cost to manufacture one Basic unit?

(#3) Using activity-based costing, what was the cost to manufacture one Deluxe unit?

(#4) Based on what you learned about activity-based costing this week, how might Zoo Companys managers use the new cost information from its activity-based costing system to better manage its business?