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Ontario, Inc. manufactures two products, Standard and Enhanced, and applies overhead on the basis of direct-labor hours. Anticipated overhead and direct-labor time for the upcoming accounting period are $800,000 and 25,000 hours, respectively. Information about the companys products follows.

Standard:

Estimated production volume, 3,000 units Direct-material cost, $25 per unit Direct labor per unit, 3 hours at $12 per hour

Enhanced:

Estimated production volume, 4,000 units Direct-material cost, $40 per unit Direct labor per unit, 4 hours at $12 per hour

Ontarios overhead of $800,000 can be identified with three major activities: order processing ($150,000), machine processing ($560,000), and product inspection ($90,000). These activities are driven by number of orders processed, machine hours worked, and inspection hours, respectively. Data relevant to these activities follow.

	Orders Processed			Machine Hours Worked			Inspection Hours
Standard		300			18,000			2,000
Enhanced		200			22,000			8,000
Total		500			40,000			10,000

Top management is very concerned about declining profitability despite a healthy increase in sales volume. The decrease in income is especially puzzling because the company recently undertook a massive plant renovation during which new, highly automated machinery was installedmachinery that was expected to produce significant operating efficiencies.

Required:

1. Assuming use of direct-labor hours to apply overhead to production, compute the unit manufacturing costs of the Standard and Enhanced products if the expected manufacturing volume is attained.

2. Assuming use of activity-based costing, compute the unit manufacturing costs of the Standard and Enhanced products if the expected manufacturing volume is attained.

3. Ontarios selling prices are based heavily on cost.

a.

B.Is it possible that overcosting and undercosting (i.e., cost distortion) and the subsequent determination of selling prices are contributing to the companys profit woes?

yes or no?

Standard Enhanced aluring cost per unie Standard Enhanced Manufacturing cost per unit Standard Enhanced aluring cost per unie Standard Enhanced Manufacturing cost per unit Standard Enhanced aluring cost per unie Standard Enhanced Manufacturing cost per unit

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