North-South Pole Company produces two products, a jacket suitable for adventure-seeking people (Spirit) and a jacket for less-adventurous people (Companion).
Production and Sales per year 20,000 units (Spirit) & 5,000 units (Companion)
Direct labour 3.5 hours per unit (both)
Direct labour cost $32.00 per hour
Estimated annual manufacturing overhead $200,000
Direct materials $180 per unit (both)
Breakdown of overhead rates
| Activity Cost Pools | Estimated Overhead | Expected Use of Cost Drivers per Activity | Activity Based Overhead Rates |
| Machine set-up | $ 40,000 | 200 | $? per set-up |
| Sewing | $135,000 | 37,500 machine hours (MH) | $? per MH |
| Inspection | $ 25,000 | 1000 | $? per inspection |
The breakdown between the two products for assigning overheads are as follows:
| Product | No. of Set-ups | Sewing | Inspections |
| Spirit | 105 | 23,500 | 500 |
| Companion | 95 | 14,000 | 500 |
Required:
From the following information, calculate the unit costs for “Spirit” and “Companion” using both the traditional method of costing (i.e. manufacturing overhead rate is based on units produced), and Activity based Costing.
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