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Question 3 20 pts Question III: Activity-Based Costing [20 marks] Hi Kitty Company manufactures two products, Product C and Product D. The company estimated it would incur $99,590 in manufacturing overhead costs during the current period. Overhead currently is assigned to the products on the basis of direct labor hours. Data concerning the current period's operations appear below: Product C Product D 2,600 units 1,200 units Estimated volume 0.60 hour Direct labor hours per unit 0.50 hour Direct materials cost per unit $17.70 Direct labor cost per unit $8.00 $27.90 $9.60 Required: a. Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year. (5 marks] b. The company is considering using activity-based costing (ABC) system to compute unit product costs instead of its traditional system based on direct labor hours. The activity-based costing system would use three activity centers. Data relating to these activities for the current period are given below: Expected Activity Total Product C Product D Estimated O/H costs Activity Center Machine setups Purchase orders $8.370 270 120 150 $81,120 1,690 630 1,060 General factory $10,100 2,020 1.300 720 $99,590 Determine the total overhead cost charged to each product and the unit product cost of each product for the current period using the activity-based costing approach. [10 marks] c. Explain why using ABC system to calculate the company's unit product costs would be more accurate than using direct labor hours only. [5 marks]

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