Problem 1:

Mathias Company manufactures a number of specialized machine parts. Part Bunkka-22 uses $35 of direct materials and $15 of direct labor per unit.

Mathias estimates manufacturing overhead is as follows:

Materials handling




Factory supervision




Overhead is applied based on direct labor costs, which were estimated at $200,000.

Mathias is considering adopting activity-based costing. The cost drivers are estimated at:


Cost Driver

Expected Use

Materials Handling

Weight of materials

50,000 pounds


Machine hours

20,000 hours

Factory supervision

Direct labor hours

12,000 hours

  1. Compute the cost of 1,000 units of Bunkka-22 using the current traditional costing system.
  2. Compute the cost of 1,000 units of Bunkka-22 using the proposed activity-based costing system. Assume the 1,000 units use 2,500 pounds of materials, 500 machine hours, and 1,000 direct labor hours.

Problem 2:

In the month of March, New Day Spa services 570 clients at an average price of $120. During the month, fixed costs were $21,000 and variable costs were 65% of sales.

  1. Determine the contribution margin in dollars, per unit, and as a ratio.
  2. Using the contribution margin technique, compute the break-even point in dollars and in units.