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East Coast Company manufactures two product: A-11 and B-12. The A-11 are smaller and less expensive than the 8-12. The company only recently began producing the B:12. Since the introduction of the new product, profits have been steadily declining. Management believes that the accounting system is not accurately allocating costs to products, particularly because sales of the new product have been increasing, Management has asked you to investigate the cost allocation problem. You find that manufacturing overhead is currently assigned to products based on their direct labor costs. For your investigation, you have data from last year. Manufacturing overhead was $1,440,000 based on production of 28,000 A-11 and 10,000 B-12. Direct labor and direct materials costs were as follows: Direct labor Materials Product A-11 $1,160,400 750,000 Product B-12 $439,600 684,000 Total $1,600,000 1.434,000 Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows: Cost Driver Total Number of production runs Quality test performed Shipping orders processed Total overhead Cost Assigned $660,00 594,000 186.000 Level Activity Product Product A-11 B-12 40 10 12 18 100 50 50 30 150 $1,440,000 Required: (Show the calculations) 1. How much oyerhead will be assigned to each product of these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product?" 2. How much overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? 3. How might the results from using activity based costing in requirement (1) help management understand East Coast's declining profits? 4. You can use the following table for your answers Rate A-11 8-12 Total

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