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



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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