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Activity-Based Costing Process Assignment Alaire Corporation manufactures several different classic pens; however, two of the pens account for the majority of the companys sales. The first of these pens, a ball point, has been a standard in the industry for several years. The second high-volume product, a roller ball pen, is a recent addition to Alaires product line. Historically Alaires pricing formula has been to set each products target price at 300 percent of its full product cost.

The companys plant is partially automated, however, some manual labor is employed. The company uses the activity-based cost system. The following cost driver information is used in the product-costing system:

OH Cost Pool	Budgeted OH Cost	Budgeted Level for Cost Driver	Cost Driver
Machine depreciation/maintenance	$140,400	27,000	Machine hours
Factory depreciation/utilities/insurance	117,000	30,000	Machine hours
Product design	504,000	42,000	Hours in design
Material purchasing/storage	147,000	980,000	Raw materials

Two current product orders have these requirements:

	Ball Point Pen 15,000 units	Roller Ball Pen 20,000 units
Direct labor hours	24	12
Raw material	$29400	$25725
Hours in design	15	37.5
Machine-hours	50	40

Direct labor costs are $60 per hour. Alaire continues to work on decreasing this number and anticipates they will cut it in half within five years.

REQUIRED:

1. Using ABC, what is the total overhead that should be assigned to each product order?

2. Using ABC, what is the cost per pen for each product order?

3. Using traditional costing, compute the predetermined overhead rate if the direct labor budget allows for 3,750 hours of direct labor.

4. Compute the total overhead cost assigned to each production order using the predetermined overhead rate.

5. What is the cost per pen for each product order using traditional costing?

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