Question 2 - CIA 1195 III-94 - Activity-Based Costing Believing that its traditional cost system may be providing misleading information, an organization is considering an activity-based costing approach. It now employs a full cost system and has been applying its manufacturing overhead on the basis of machine hours. The organization plans on using 50,000 direct labor hours and 30,000 machine hours in the coming year. The following data show the manufacturing overhead that is budgeted. Activity Cost Driver Budgeted Activity Budgeted Cost Material handling No. of parts handled 6,000,000 $720,000 Setup costs No. of setups 750 315,000 Machining costs Machine hours 30,000 540,000 Quality control No. of batches 500 225,000 Total Manufacturing Overhead Cost $1,800,000 Cost, sales and production for one of the organization's products for the coming year are as follows: Prime Costs: Direct material cost per unit $4.40 Direct labor cost per unit = .05 DLH @ $15/DLH .75 Total Prime Cost $5.15 Sales and Production Data: Expected sales 20,000 units Batch size 5,000 units Setups 2 per batch Total parts per finished unit 5 parts Machine hours required 80 MH per batch

a.) Compute the per- unit cost for this product for 2014 if Missoula uses the traditional full-cost system.

b.) Compute the per-unit cost for this product for 2014 if the Missoula employs an activity-based costing system.

c.) Assume the company wishes to achieve a gross profit rate of 40 percent. Determine the selling price that would be required based on the answer to (a) and(b)