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Activity Based Costing vs. Traditional Costing Lovelace Company produces only two products: reading glasses and sunglasses. The company uses a normal cost system and overhead costs are currently allocated using a plant-wide overhead rate based on direct labor hours. Outside cost consultants have recommended that the company use activity-based costing to charge overhead to products. The company expects to produce 3,000 reading glasses and 2,000 sunglasses this year. At the beginning of the year, the following data were prepared for this plant: Prescription Glasses Sunglasses Quantity produced and sold 3,000 2,000 Selling price per unit $ $ 100.00 75.00 Direct Material (per unit) $ 15.00 17.00 Direct labor (per unit) $ 6.00 4.00 Direct labor hours 30,000 20,000 Estimated total factory overhead data for the year is as follows: Activity Total Budgeted Overhead Reading Glasses Sunglasses 40 Production setups 80,000 40 70,000 Material handling 4,000 1,000 5,000 5,000 60,000 2,000 3,000 Packaging and shipping Total factory overhead 210,000 S S Required: 1. Calculate the overhead cost per unit of each product using a plant-wide rate based on direct labor hours: Reading glasses Sunglasses 2. Calculate the product cost per unit of each product using a plant-wide rate based on direct labor hours: Reading glasses Sunglasses 3. Calculate the contribution margin per unit of each product using a plant-wide rate based on direct labor hours: Reading glasses Sunglasses 4. Calculate the activity cost rates for the following activities: (a) Setups (b) Material handing (c) Packaging and shipping 5. Calculate the overhead cost per unit of each product using activity-based costing: Reading glasses Sunglasses 6. Calculate the product cost per unit of each product using activity-based costing: post mwolt Reading glasses Sunglasses 7. Calculate the contribution margin per unit of each product using activity-based costing: Reading glasses Sunglasses