Seven Walls Ltd manufactures two products, Stone and Glass. Budgeted overhead and direct labor hours for the upcoming period are $884,500 and 29,000, respectively. The overhead costs are identified with three major activities: order processing $160,000; machine processing $614,500 and product inspection $110,000. Seven Walls pays its laborer on average $20 per hour. Information about the company’s products are as follows:

Stone
Estimated production volume:	5,200
Direct material cost per unit:	25
Direct labor hours per unit:	2
Glass
Estimated production volume:	6,500
Direct material cost per unit:	40
Direct labor hours per unit:	3

Information about the number of inspections, machine hours and order processed are as follows:

Product line	Inspection hours	Machine hours worked	Order processed
Stone	1,800	16,100	322
Glass	5,200	19,000	240
Total	7,000	35,100	562

Required:

Calculate the unit product costs for Stone and Glass using:

1. Traditional costing, assuming direct labor hours is the allocation base.
2. Activity-based costing.

Answer rating: 100% (QA)

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