Problem $17\mathrm{.}8$A $($Static$)$ ABC versus Use of a Single Activity Base $($LO$17-6,$ LO$17-7)$

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Healthy Hound, Incorporated, makes two lines of dog food: $(1)$ Basic Chunks and $(2)$ Custom Cuts. The Basic Chunks line is a dry food that is processed almost entirely by an automated process. Custom Cuts is a canned food made with real horsemeat. The slabs of meat are cut and trimmed by hand before being shoveled into an automated canning machine. Basic Chunks sells very well and is priced significantly below competitive brands. Sales of Custom Cuts have been on the decline, as the company has failed to keep the brand price competitive. Other information concerning each product line is provided as follows:

$$Basic ChunksCustom CutsNumber of units$*$ produced and sold per month$50,00020,000$Direct materials cost per unit$ $2$$ $4$Direct labor cost per hour$ $12$$ $12$Direct labor hours per unit$0\mathrm{.}010\mathrm{.}10$

$*$Units for Basic Chunks refer to bags; units for Custom Cuts refer to cases.

The company currently allocates manufacturing overhead to each product line on the basis of direct labor hours. Budgeted manufacturing overhead per month is $$24,600,$ whereas budgeted direct labor hours amount to $2,500$ per month.

Healthy Hound recently hired a consultant to examine its cost accounting system. The consultant recommends that the company adopt activity$-$based costing to allocate manufacturing overhead. She proposes that the following cost pools and cost drivers be used:

Cost PoolAmount AllocatedCost DriverTotal Driver VolumeUtilities$ $8,000$Kilowatt$-$hours$100,000$kWhMaintenance$1,000$Machine$-$hours$200$mhDepreciation of plant and equipment$15,000$Square feet occupied$80,000$Square FeetMiscellaneous$600$Direct labor hours$2,500$DLHTotal allocation$ $24,600$

The amount of driver activity corresponding to each product line is as follows:

Cost DriverBasic ChunksCustom CutsKilowatt$-$hours$90,000$kWh$10,000$kWhMachine$-$hours$160$mh$40$mhSquare feet occupied$60,000$Square Feet$20,000$Square FeetDirect labor hours$500$DLH$2,000$DLH

Problem $17\mathrm{.}8$A $($Static$)$ Part b

b$.$ Allocate manufacturing overhead costs to each product line using the activity$-$based costing approach recommended by the consultant.