DiveIn, Inc. manufactures two products, Goggles and Snorkels.Goggles are the more complex of the two products, requiring moredirect labor time and more machine time per unit than Snorkels.Manufacturing overhead is currently assigned to the products on thebasis of direct labor hours. The company has gathered some activityinformation and is interested in the differences between itspresent costing method and activity-based costing. All overheardcosts should be allocated to the products. The overhead cost poolsand activity drivers are as follows: Activity Pool Overhead CostsTotal Driver Usage Setup $256,000 3,200 setups Materials Purchasing110,000 2,750 purchase orders Machining/Fabricating 136,000 27,200machine hours Total Overheard Costs $502,000 Other productinformation is as follows: Snorkels Goggles Number of unitsproduced 40,000 10,000 Direct materials cost $ 15.00 per unit $30.00 per unit Direct labor cost $ 5.25 per unit $ 14.00 per unitDirect labor hours 30,000 20,000 Setups 400 2,800 Purchase orders2,070 680 Machine hours 8,000 19,200 Required a. Using thetraditional method of allocating overhead based on direct laborhours, compute the unit product cost of Goggles and Snorkels: i.Determine the overhead rate per direct labor hour. ii. Allocateoverhead to each product based on the direct labor hours used byeach. iii. Divide the total overhead allocated to each product bythe number of products produced to obtain the overhead cost perunit. iv. Add the overhead cost per unit to the direct materialsand direct labor costs per unit to obtain the unit product cost. b.Using an activity-based costing approach, compute the unit productcost of Goggles and Snorkels: i. Determine the three activityrates. ii. Allocate overhead to each product based on the activitydrivers used by each. Total the three activity allocations toarrive at the total overhead allocated to each product. iii. Dividethe total overhead allocated to each product by the number ofproducts produced to obtain the overhead cost per unit. iv. Add theoverhead cost per unit to the direct materials and direct laborcosts per unit to obtain the unit product cost. c. Why do youranswers to a(iv) and b(iv) differ? Be specific
