Reference no: EM132536128

Pitney Corporation manufactures two types of transponders-no. 156 and no. 157-and applies manufacturing overhead to all units at the rate of $76.50 per machine hour. Production information follows.

                                                               No. 156           No. 157

Anticipated volume (units)                   6,000              14,000

Direct material cost                              $40                   $65

Direct labor cost                                       25                 25

• The controller, who is studying the use of activity-based costing, has determined that the firm's overhead can be identified with three activities: manufacturing setups, machine processing, and product shipping. Data on the number of setups, machine hours worked, and outgoing shipments, the activities' three respective cost drivers, follow.

                                         No. 156              No. 157            Total

Setups                             60                40               100

Machine hours worked       15,000            25,000         40,000

Outgoing shipments            120                 80             200

The firm's total overhead of $3,060,000 is subdivided as follows: manufacturing setups, $260,000; machine processing, $2,400,000; and product shipping, $400,000.

Required:

Question A. Compute the application rates that would be used for manufacturing setups, machine processing, and product shipping in an activity-based costing system.

Question B. Assuming use of activity-based costing, compute the unit overhead costs of product nos. 156 and 157 if the expected manufacturing volume is attained.

Question C. Assuming use of activity-based costing, compute the total cost per unit of product no. 156.

Question D. If the company's selling price is based heavily on cost, would a switch to activity-based costing from the current traditional system result in a price increase or decrease for product no. 156? Show computations.