Summer Daze Corporation Manufactures Two Products, Bocce Ball Sets and Croquet

Essay

Summer Daze Corporation manufactures two products, Bocce Ball Sets and Croquet Sets. Croquet Sets were added as a product line two years ago. Croquet Sets are the more complex of the two products, requiring one hour of direct labour time per unit to manufacture, compared to one-half hours of direct labour time for Bocce Ball Set. Croquet Sets are produced on an automated production line.
Indirect costs are currently allocated to the products on the basis of direct labour hours. The company estimated it would incur $332,500 in manufacturing overhead costs and produce 6,000 units of Croquet Sets and 20,000 units of Bocce Ball Sets during the current year.

Required:
a. Determine the unit cost of a Bocce Ball Set using traditional (simple) costing with units as the allocation base.
b. Determine the unit cost of a Bocce Ball Set using activity-based costing.