Pitney Corporation Manufactures Two Types of Transponders-No The Controller, Who Is Studying the Use of Activity-Based Costing

Essay

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.
$\begin{array}{lll} & \underline{\text { No. } 156} & \underline{\text { No. } 157} \\\text { Anticipated volume (units) } & \underline{\underline{6.000}} & \underline{14.000} \\\text { Direct material cost } & \$ 40 & \$ 65 \\\text { Direct labour cost } & 25 & 25\end{array}$ 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. $\begin{array}{lccc} & \underline{\text { No. } 156} & \underline{\text { No. } 157} &\underline {\text { Total } } \\\text { Setups } & 60 & 40 & 100 \\\text { Machine hours worked } & 15,000 & 25,000 & 40,000 \\\text { Outgoing shipments } & 120 & 80 & 200\end{array}$ 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:
A. Compute the pool rates that would be used for manufacturing setups, machine processing, and product shipping in an activity-based costing system.
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.
C. Assuming use of activity-based costing, compute the total cost per unit of product no. 156.
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.