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Question - DFC Inc. has budgeted manufacturing overhead costs of $2,470,000. It has allocated overhead on a plant-wide basis to its two products (Soft Wood and Hard Wood) using machine hours, which are estimated to be 109,000 for the current year. The company has decided to experiment with activity based costing and has created five activity cost pools and related activity cost drivers as follows:
Activity Centre
Cost Driver
Estimated Overhead
Expected Activity
Material Handling
Number of moves
$240,000
29,000 moves
Purchase Orders
Number of orders
$135,000
3,850 orders
Product Testing
Number of tests
$340,000
7,250 tests
Machine Set-up
Number of set-ups
$420,000
6,700 set-ups
Machining
Machine hours
$740,000
75,500 machine hours
Each unit of the products requires the following:
Soft Wood
Hard Wood
Direct Material Costs
$270
$195
Direct Labour Costs
$150
$55
3
4
2
7
5
40
60
6
Required -
1. Under traditional costing using machine hours, calculate the total manufacturing cost per unit of both products.
2. Calculate the total manufacturing cost per unit for both products under ABC.
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