Your company is Guava Company

Your company manufactures two sizes of box springs: twin and double. Presented below is the budget estimates for material cost & labor cost per unit and the budgeted overhead within the activity cost pools.

Production Data

		Twin			Double
Material Cost per unit			27		38
Labor Cost per unit			51		61
Budgeted Production Esti	mate		5000		9200
Activity Cost Pools		Driver			Estimated Ove	rhead		Use per Twin		Use per Double
Framing		Square feet of		pine	194,400			4,628		1,852
Padding		Square feet of		quilting	194,500			108,055		86,445
Filling		Square feet of		filling	320,900			501,406		300,844
Labeling		Number of box		es	249,800			832,666		416,334
Inspection		Number of ins		pections	264,700			17,646		8,824

A)

If the company currently uses a traditional plantwide overhead allocation rate based of 150% of labor cost, calculate the unit cost of the twin and double box springs.

B)

The company is investigating the use of activity-based costing and has created the activity cost pools shown above. Calculate the unit cost of the twin and double box springs using ABC. Note: The use of ABC or traditional costing does not change the total overhead amount but instead simply changes the way it is allocated.

C)

Analyze the results.  If you believe the ABC numbers are more accurate, discuss the potential impact to pricing of the twin and double if the sales price is determined by the cost.