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Youre in Hot Water Inc. manufactures Jacuzzi hot tubs. The company produces two models, the Basic and the Superjet which promises a jet power setting that borders on cruel. Since the introduction of the Superjet, the companys profits have been faltering, despite increased sales. The companys senior accountant believes that the costing system may be causing problems. The company uses direct-labour hours as the basis for applying overhead. Overhead is estimated to be $300,000.

The following cost data is known:

	Basic	Superjet
Direct Materials	$700	$1200
Direct Labour ($15 per hour)	60	90
Number of units produced	600 units	100 units

The CFO wishes to explore an activity-based costing system

Activity (Cost Driver)		Estimated MOH	Expected Activity
			Total	Basic	Superjet
Assembly (Labour Hours)		$60,000	3,000	2,400	600
Quality control (Inspection Hours)		75,000	800	600	200
Machining (Machine Hours)		25,000	40,000	30,000	10,000
Parts Admin (Number of Parts)		140,000	500	100	400
		$300,000

Required - Provide detailed solutions/ answers to the following:

1. Under the traditional costing method:
   1. Compute the predetermined overhead rate.
   2. Determine the unit cost of each product.
2. Under activity based costing:
   1. Compute the activity rates for each activity.
   2. Determine the expected unit cost of each product.
3. Compare and comment on your answers from parts a.) and b.) above.
4. If ABC produces more accurate cost data, why is it not more widely used?

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