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Accounting for Decision Making and Control, Eighth Edition Criticisms of Absorption Cost Systems: Inaceurate Product Costs p11-2: GAMMA 513 GAMMA produces over a hundred different plant. This plant uses activity-based costing to rizes the plant's overhead for the types of residential water faucets at its Delta, Plorida, calculate product costs. The following table summa year and the cost drivers used for each activity center Summary of Plant Overhead and Activity Centers Total Amount of Cost Activity Cos per Unit of (Millions of Dollars) $20.8 13.8 Activity Center Cost Driver Cost Driver Materials handling Purchasing Set-up labor Engineering Direct materials Part numbers $130 million 800 500 125 $90 million S0.16 $17,250 $13,600 $87,200 S0.18 6.8 10.9 16.2 Number of products Direct labor Total plant overhead$68.5 One faucet model GAMMA manufactures is Explorer. Its total product cost is as follows Activity Cost Amount of Cost Driver per Unit of Cost Driver Total Cost $121.700 90,500 14,480 155,250 108,800 87,200 21,906 Direct labor Direct materials Materials handling Purchasing Setup Engineering Occupancy Total cost Number of units manufactured Product cost per unit S0.16 17,250 13,600 $ 90,500 $12,700 87,200 S0.18 $399,836 12,500 S 47.99 Required Calculate the product cost per unit of the Explorer faucet using absorption costing where plant over- head is assigned to products using direct labor dollars

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