Reference no: EM132955316

Question - The Track Corporation makes mountain bikes. They make several different models. Under the old cost system Track allocated overhead based on number of units produced. Overall, Track produces 150,000 bicycles each year. Track decided to switch to Activity Based Costing as it was consistently selling its basic model for 800, which is less than any competitor was offering a similar model. The following data relates to the basic model: Basic Model: Annual Production 40,000 units Direct Materials $400 per unit Direct Labor $100 per unit Firm-wide Manufacturing Overhead Cost Pools: Cost Pool Cost Cost Driver Material Ordering $400,000 Number of purchase orders Machine Setup $6,000,000 Number of setups Machine Processing $14,000,000 Machine hours Rent & other fixed costs $5,000,000 Direct labor costs Total overhead $25,400,000 Annual Activity Cost Pool All Products Basic model Material Ordering 40,000 purchase orders 8,000 Machine Setup 6,000 setups 1,000 Machine Processing 50,000Mhr 15,000Mhr Rent & other fixed costs $5,000,000 DL cost (firm-wide cost) ?

Required -

a. Calculate the unit cost per basic model under the old cost system.

b. Calculate the unit cost per basic model under the new ABC costing system. Should Track sell their basic model for $800?