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Kangaroo Inc. manufactures two models of high-pressure steam valves, the XR7 model and the ZD5 model. Budgeted manufacturing overhead cost and operating data regarding production and sales of 2,000 units of the XR7 model and 8,000 units of the ZD5 model for 2005 follow: Budgeted Level for Cost Driver Cost Driver XR7 ZD5 Total Activity Cost Pool Budgeted Overhead Costs $800,000 150 100 250 Machine setups Number of setups 200,000 Number of 800 200 1,000 Vendor negotiation parts Assembly 400,000 4,000 36,000 40,000 Direct labour hours $1,400,000 Required: a) Identify and briefly explain each of the three cost drivers as either unit- level or bath-level or product- level or organization- sustaining level. b) Calculate the budgeted manufacturing overhead cost for each unit of the two models, using the activity- based-costing (ABC) method. c) Calculate the budgeted manufacturing overhead cost for each unit of the two models, using one unit- level cost driver. (Hint: Traditional Costing Method) d) Assume Kangaroo Inc. will use only the traditional method. Compared to the ABC method, by how much (in terms of total allocated/applied manufacturing overhead cost), if any, will the total output of each model be either under-costed or over-costed? e) Is the result obtained in part (d) above consistent with your expectations? Explain

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