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Sheep Corporation manufactures two products Product B and Product A Product A is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product B. Product A is the more complex of the two products, requiring three hours of direct labour time per unit to manufacture, compared to a hour and a half of direct labour time for Product B. Product A is produced on an automated production line Overhead is currently assigned to the products on the basis of direct labour hours. The company estimated it would incur $531340 in manufacturing overhead costs and produce 12,000 units of Product A and 65.000 units of Product B during the current year Unit cost for materials and direct labour are: Direct materials Direct labour Product $12 SE Product A $26 $12 Required: a) Compute the predetermined overhead rate under the current method of allocation, and determine the unit product cost of each product for the current year b) The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below. Activity Cost Pool Machine setups required Purchase orders issued Machine hours required Maintenance requests issued Total Estimated Overhead Cost $243,240 45,600 104,000 138.500 $531, 346 Expected Activity Product B Product A 900 1,500 500 100 3,250 11,000 870 1.130 Total 2,400 600 14,250 2,000 Using the data above and an activity-based costing approach, calculate the pool rates and determine the unit product cost of each product for the current year Explain how ABC improves product cost information, why would they chose to move to an ABC system

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