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Chemical Recovery Company uses common machinery to manufacture two products. Each year, the company has a total of four productions runs, which is two production runs for each product. Each run requires similar setup effort. Setup cost totals $40,000 per year and is included in manufacturing overhead. Total overhead for the company is $160,000 annually, and total expected direct labor hours equal 14,000.
The following information is available for products A and B.
Product A Product B
Units produced 10,000 2,000
Direct material cost per unit $16 $16
Direct labor cost per unit $20 $20
Direct labor hours per unit 1 1
Required: Calculate the cost per unit for each product, using activity-based costing. Round allocation rates and your final answers to the nearest penny. Show calculations to support your answers.
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