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Case: 1) A company needs an analysis to determine whether it should continue to use traditional overhead allocation or activity-based costing. The company uses common machinery to manufacture two simple products. Each year, two production runs for each product require a similar setup effort. Manufacturing overhead includes a setup cost of $50,400 per year. Total overhead for the company, including the setup cost, is $198,000 annually, and direct labor hours are expected to total 18,000 for the year.
The following information is available for products A and B:
Product A Product B
Units produced 1,000 8,000Direct material cost per unit $14 $14Direct labor cost per unit $24 $24Machine hours per unit 1 1Direct labor hours per unit 2 2
Required:
a. Using the format in the video the cost per unit for each product using traditional overhead allocation.
b. Using the format in the video, calculate the cost per unit for each product using activity-based costing. Please use direct labor hours for the "Other overhead" allocation pool.
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