Traditional and Activity-Based Costing Problem:

Bangor LLC manufactures two models of GPS tracking modules: Standard and Super-Cool.Bangor currently uses a traditional job-order costing system and applies overhead on the basis of direct labor hours.

Anticipated overhead and direct labor time for the upcoming accounting period are $3,200,000 and 50,000 hours, respectively.Information about the company's products are as follows:

STANDARD SUPER-COOL

Estimated total production volume 3,000 units 4,000 units

Direct materials cost (per unit) $56 $84

Direct labor cost (per unit) $90 (3 hrs @ $30/hr) $120 (4 hrs @ $30/hr)

Recently, the controller of Bangor LLC has been considering whether the cost allocations under their traditional costing systems are accurate.She decided to test out an activity-based costing (ABC) system and compare the results)

The controller identified three major activities: order processing, machine processing, and product inspection hours.Order processing uses the number of orders processed as its cost driver.Machine processing uses the number of machine hours worked as its cost driver.

Finally, product inspection uses the number of inspection hours as its cost driver.The $3,200,000 in total overhead is divided across the three cost pools as follows: Order processing, $500,000; Machine Processing, $2,400,000; Product Inspection, $300,000.

Data relevant to these activities is as follows:

Orders Processed Machine Hours Worked Inspection Hours

STANDARD 320 16,000 4,000

SUPER-COOL 180 24,000 6,000

Total 500 40,000 10,000

Please answer the following questions related to the data provided above:

A. What is the unit cost of STANDARD and SUPER-COOL under the current job-order costing system? (4 points)

B. What is the unit cost of STANDARD and SUPER-COOL using the new ABC costing system? (8 points)

C. Is the SUPER-COOL produce undercosted or overcosted by the traditional costing system?Explain why you think this happened. BE BRIEF!! (4 points)

D. The information given in the problem states that the controller identified the cost pools and allocated costs associated with the pool.We discussed several issues, during class, which suggest this might be a bad idea for the company.Identify and briefly discuss one of those reasons and give two suggestions related to how the controller can ensure that ABC cost data is more accurate and useful for decision making.BE BRIEF! (4 points)