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Prosperity Manufacturing Company manufactures Productc A, B and C. The company uses a traditional overhead allocation scheme and assigns overhead to products at the rate of P30 per direct labor hour. The costs per unit for each product group in 2019 were as follows:

Product A Product B Product C

Direct Material P12 P120 P12

Direct Labor 18 135 45

Overhead 24 018 60

Total 54 435 117

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Because profitability has been lagging and competition has been getting more intense, Prosperity Manufacturing Company is considering implementing an activity based costing system for 2020. In analyzing the 2019 data, ,management determined that its P18,000,000 of factory overhead could be assigned to four basic activities: quality control, setups, material handling, and equipment operation. Data for 2019 costs associated with each of the four activities follow:

Quality Control Setups Material Handling Equipment Operation Total

P630,000 P600,000 P1,800,000 P14,970,000 P18,000,000

Management determined that the following allocation bases and total 2019 volumes for each allocation base could have been used for ABC:

Activity Base

Quality Control Number of units produced

Setups Number of setups

Material Handling Pounds of material used

Equipment operation Number of machine hours

Volume measures for 2019 for each product and each allocation base were as follows:

Product A Product B Product C

Number of units 300,000 30,000 90,000

Number of setups 600 1,300 1,100

Pounds of Material 1,200,000 3,000,000 1,800,000

Number of Machine Hours 600,000 1,100,000 1,300,000

Required:

1. How much direct labor time is needed to produce Product A, Product B and Product C?
2. For 2019, determine he total overhead allocated to each product group using the traditional allocation based on direct labor hours.
3. For 2019, determine the total overhead that would have been allocated to each product group if activity-based costing were used. Compute the cost per unit for each product group.
4. The company has a policy of setting sales prices based on product costs. How would the sales prices using activity-based costing differ from those obtained using the traditional overhead allocation.

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