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CoursHeroTranscribedText: Our company makes and sells consumer devices that use ultraviolet (UV) radiation to disinfect phones, tablets. laptops. and other small- and mediumsized items. We offer three products: - Phone Wash, for disinfecting small gear, sold for $75 per unit; - Trove} Wash. sold for $100 per unit. Similar to the Phone Wash. but with a rechargeable battery; - Home Wash. sold for $150 per unit. These are large enough to disinfect most laptops. Our products were introduced in 2018. Sales greatiy exceeded expectations in 2020: consequently, we doubled our manufacturing capacity for 2021. While 2021 saw additional sales increases. our manufacturing capacity exceeds current demand. Ail three products are made at a single production facility, in a single automated production line. Switching production between a batch ofone product and a batch ofanother product requires setting up and testing the production iine. We have been using an activity-based costing (ABC) system to compute our unit costs. This system incorporated the hierarchy of costs. but with only two leyeis: unit-leyei and batch-level. {Batch- level costs are primarily for setups. Productelevel and Sustainingeievel costs were immaterial.) Overhead (UH) rates in the ABC system were computed at the beginning of each year using estimated units and estimated batches. in May 2021, the CFO asked the accounting team to explore the possibility of changing our internai reporting in one of two possible ways. First. the CFO asked that we consider using variable costing. Second, the CFO asked us to investigate continuing the ABC absorption system. but with practictr! capacigz. Estimated 2021 unit and batch costs using our current ABC system, the ABC system with practical capacity. and variabie costing are below (along with some additional data): 2021 Estimates: Phone Wash Travel Wash Home Wash Units made and sold 900,000 450,000 120.000 Average batch size 3.000 1,000 1.000 Number of batches 300 450 120 Unit-level cost per unit: current ABC system 558 $71 $123 Unit-level cost per unit: variable costing $42 $51 $89 Unitlevel cost per unit: ABC with practical capacity 550 $61 5106 Batch-level cost per batch: current ABC system 5990 $1,100 51,300 Batch-level cost per batch: variable costing $550 5640 5760 Batch-level cost per batch: ABC with practical capacity 5880 $985 51,165 What is our total estimated cost ofexcess capacity in 2021

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