Two years ago, company scientists developed an alloy with all of the properties of the raw materials used in XL-D that generates nowastewater. Some prototype components using the new material were produced and tested and found to be indistinguishable fromthe old components in every way relating to their fitness for use. The only difference is that the new alloy is more expensive than theold raw material. The company has been test-marketing the newer version of the component, referred to as XL-C, and is currentlytrying to decide its fate.Manufacturing of both components begins in the Production Department and is completed in the Assembly Department. No otherproducts are produced in the plant. The following information relates to the two components:Units producedRaw material costs per unitDirect labor-hours per unit-ProductionDirect labor-hours per unit-AssemblyDirect labor rate per hour-all laborMachine-hours per unit-ProductionMachine-hours per unit-AssemblyTesting hours per unit (all in production)Shipping weight per unit (pounds)Wastewater generated per unit (gallons)Annual overhead costs for the two departments follow:SupervisionMaterial handlingTestingWastewater treatmentDepreciation on equipmentShippingTotalProductionDepartment$ 108,00097,000158,000258,000408,0007,800$ 1,036,800XL-D100,000$ 12.800.10.4$ 24.001.60.43.01.010.0XL-C25,000$ 14.80$ 24.001.60.43.01.60.0AssemblyDepartment$ 248,00044,00000.10.4108,000128,000$ 528,000The company president believes that it's foolish to continue producing two essentially equivalent products. At the same time, thecorporate image is somewhat tarnished because of a toxic dump found at another site (not the Valley plant). The president would liketo be able to point to the Valley plant as an example of company research and development (R&D) working to provide anenvironmentally friendly product. The controller points out to the president that the company's financial position is shaky, and it cannotafford to make products in any way other than the most cost-efficient one. a. 3C's current cost accounting system charges overhead to products based on direct labor cost using a single plantwide rate. Whatproduct costs will it report for the two products if the current allocation system is used?b. The controller recently completed an executive education course describing the two-stage allocation procedure. Assume that thefirst stage allocates costs to departments and the second stage allocates costs to products. The controller believes that the costs willbe more accurate if machine-hours are used to allocate Production Department costs and labor-hours are used to allocate AssemblyDepartment costs. What product costs will be reported for the two products if the two-stage allocation process is used?d. The president argues that an activity-based costing system would provide even better costs. The company decides to computeproduct costs assuming an ABC system is implemented only in the Production Department. Overhead in Assembly will continue to beallocated based on direct labor cost. The cost drivers selected for the activity-based costing system are as follows.Overhead ItemSupervisionMaterial handlingTestingWastewater treatmentDepreciation on equipmentShippingDriverDirect labor-hoursMaterial costTesting hoursWastewater generatedMachine-hoursWeightWhat product costs would be reported if this ABC system were implemented? Assume that the production mix and costs would remainas originally planned.

Activity-Based Costing (ABC) is a costing methodology that assigns overhead costs to specific activities or services based on their actual consumption or use of resources. ABC identifies the activities that drive costs within an organization and allocates those costs to the products, services, or customers that consume those activities.Step 1: Determine the overhead rate:Step 2: Determine the product costs will it report for the two products if the current allocation system is used:Step 1: Determine the overhead rate for each product:Step 2: Determine the product costs will be reported for the two products if the twostage allocation process is used:(a) Current allocation system:XL - D - $37.28XL - C - $39.28(b) Twostage allocation process XL - D - $37.31XL - C - $39.31(c) ABC System:XL - D - $37.02XL - C - $36.59