Activity-based costing and product cost distortion Crenshaw Inc. is considering a change to activity-based product costing. The company produces two products, cell phones and tablet PCs, in a single production department. The production department is estimated to require 4,000 direct labor hours. The total indirect labor is budgeted to be $388,800. Time records from Indirect labor employees revealed that they spent 40% of their time setting up production runs and 60% of their time supporting actual production. The following information about cell phones and tablet PCs was determined from the corporate records: Direct Labor Number of Setups Hours Cell phones Tablet PCs Total 500 1,100 1,600 2,000 2,000 4,000 Units 72,000 72,000 144,000 If required, round your answers to the nearest cent. a. Determine the Indirect labor cost per unit allocated to cell phones and tablet PCs under a single plantwide factory overhead rate system using the direct labor hours as the allocation base. Cell phones $ per unit Tablet PCs per unit per unit b. Determine the budgeted activity costs and activity rates for the indirect labor under activity-based costing. Assume two activities-one for setup and the other for production support. Budgeted Activity Cost Activity Rate Setup Production support c. Determine the activity cost per unit for indirect labor allocated to each product under activity-based costing. Cell phones $ per unit Tablet PCs per setup per direct labor hour d. Why are the per-unit allocated costs in (a) different from the per-unit activity cost assigned to the products in (c)? The per-unit indirect labor costs in (a) are distorted because setup activity the product with the larger direct labor hours are ✔ is consumed by the products in a different ratio from the direct labor. The activity-based ✓ number of setups receiving a larger portion of the setup activity cost. The single-rate system ✓equal for each product, the allocated indirect labor will also be ✔equal. ✓ costing method results in ✓ allocates overhead only on the basis of direct labor hours. Since the