Kowalski Company manufactures a number of specialized machine parts. Part Compo-24 uses $35 of direct materials and $15 of direct labor per unit. Kowalski”s estimated manufacturing overhead is as follows.

Materials handling

$150,000

Machining

180,000

Factory supervision

138,000

Total

$468,000

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

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

Activity

Cost Driver

Expected Use

Materials handling

Weight of materials

50,000 pounds

Machining

Machine horns

20,000 hours

Factory supervision

Direct labor hours

12,000 hours

Instructions

(a)Compute the cost of 1,000 units of Compo-24 using the current traditional costing system.

(b)Compute the cost of 1,000 units of Compo-24 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.