ADA Pharmaceutical Company produces three drugs—Diomycin,Homycin, and Addolin—belonging to the analgesic (pain-killer)family of medication. Since its inception four years ago, ADA hasused a direct labor hour–based system to assign manufacturingoverhead costs to products. Eme Weissman, the president of ADAPharmaceutical, has just read about activity-based costing in atrade journal. With some curiosity and interest, she asked herfinancial controller, Takedo Simon, to examine differences inproduct costs between the firm’s current costing and activity-basedcosting systems. ADA has the following budget information for theyear: Diomycin Homycin Addolin Cost of direct materials $ 198,000 $258,000 $ 251,000 Cost of direct labor 243,000 227,000 256,000Number of direct labor hours 7,130 6,730 1,930 Number of capsules930,000 493,000 293,000 ADA has identified the following activitiesand cost drivers and has assigned them a total overhead cost of$196,500. Activity Cost Driver Budgeted Overhead Cost Budgeted CostDriver Volume Machine setup Setup hours $ 15,300 1,530 Plantmanagement Number of Workers 35,300 1,130 Supervision of directlabor Direct labor hours 45,300 15,300 Quality inspectionInspection hours 49,700 1,015 Order expediting Customers served50,900 610 Total overhead $ 196,500 Takedo selected the costdrivers with the following justifications: SETUP HOURS: The costdriver of setup hours is used because the same product takes aboutthe same amount of setup time regardless of size of batch. Fordifferent products, however, the setup time varies. NUMBER OFWORKERS: Plant management includes plant maintenance andcorresponding managerial duties that make production possible. Thisactivity depends on the number of workers. The more workersinvolved, the higher the cost. DIRECT LABOR HOURS: Supervisorsspend their time supervising production. The amount of time theyspend on each product is proportional to the direct labor hoursworked. INSPECTION HOURS: Inspection involves testing a number ofunits in a batch. The time varies for different products but is thesame for all similar products. NUMBER OF CUSTOMERS SERVED: The needto expedite production increases as the number of customers servedby the company increases. Thus, the number of customers served byADA is a good measure of expediting production orders. Takedogathered the following information about the cost driver volume foreach product: Diomycin Homycin Addolin Setup hours 165 565 765Number of workers 165 365 565 Direct labor hours 7,130 6,730 1,930Inspection hours 115 165 665 Customers served 38 93 465 Part 1Required: 1. Use the firm’s current costing system to calculate theunit cost of each product. 2. Use the activity-based cost system tocalculate the unit cost of each product.