Printware Products Inc. produces printers for wholesale distributors. It has just com- pleted packaging an order from Hawes Company for 450 printers. Before the order is shipped, the controller wants to compare the unit costs computed under the company's new activity-based costing system with the unit costs computed under its traditional costing system. Printware's traditional costing system assigned overhead costs at a rate of 240 percent of direct labor cost.
Data for the Hawes order are as follows: direct materials, $17,552; purchased parts, $14,856; direct labor hours, 140; and average direct labor pay rate per hour, $17.
Data for activity-based costing related to processing direct materials and purchased parts for the Hawes order follow.
Activity Cost Driver Activity Cost rate Activity Usage Engineering systems design Engineering hours $28 per engineering hour 18 engineering hours Setup Number of setups $36 per setup 12 setups
Parts production Machine hours $37 per machine hour 82 machine hours Product assembly Assembly hours $42 per assembly hour 96 assembly hours Packaging Number of packages $5.60 per package 150 packages Building occupancy Machine hours $10 per machine hour 82 machine hours
Required:
1. Use the traditional costing approach to compute the total cost and the product unit cost of the Hawes order.
2. Using the cost hierarchy, identify each activity as unit level, batch level, product level, or facility level.
3. Prepare a bill of activities for the activity costs.
4. Use ABC to compute the total cost and product unit cost of the Hawes order. (Round your answer to the nearest cent.)
5. What is the difference between the product unit cost you computed using the traditional approach and the one you computed using ABC? Does the use of ABC guarantee cost reduction for every order?