Step-Up Corporation manufactures two small step ladders, Regular and Deluxe. Deluxe ladders were added as a product line three years ago. Deluxe ladders are the more complex of the two products as they are extendable, requiring one hour of direct labour time per unit to manufacture, compared to one-half hours of direct labour time for Regular ladder.
Indirect costs are currently allocated to the products on the basis of direct labour hours. The company estimated it would incur $332,500 in manufacturing overhead costs and produce 6,000 units of Deluxe ladders and 20,000 units of Regular ladders during the current year.
Unit costs for materials and direct labour are:
Indirect costs are:
| Estimated | Estimated | Estimated | Total |
| Activity cost pools/drivers: | | | | |
| Machine setups | $ 153,000 | 700 | 1,000 | 1,700 |
| Purchase orders | 27,500 | 300 | 200 | 500 |
| Machine hours | 128,000 | 5,000 | 11,000 | 16,000 |
| Maintenance requests | 24,000 | 200 | 300 | 50 |
| Total | $ 332,500 | | |
Required:
| a. | Determine the unit cost of the two products using traditional costing with units as the allocation |
base.
| b. | Determine the unit cost of the two products using activity-based costing. |
Examples of USP labels Source: Courtesy of Novartis Pharmaceuticals Corporation and Mallinckrodt Pha
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