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 $ 195,000 $255,000 $ 248,000 Cost of direct labor 240,000 224,000 253,000Number of direct labor hours 7,100 6,700 1,900 Number of capsules900,000 490,000 290,000 ADA has identified the following activitiesand cost drivers and has assigned them a total overhead cost of$195,000. Activity Cost Driver Budgeted Overhead Cost Budgeted CostDriver Volume Machine setup Setup hours $ 15,000 1,500 Plantmanagement Number of Workers 35,000 1,100 Supervision of directlabor Direct labor hours 45,000 15,000 Quality inspectionInspection hours 49,400 1,000 Order expediting Customers served50,600 595 Total overhead $ 195,000 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 150 550 750Number of workers 150 350 550 Direct labor hours 7,100 6,700 1,900Inspection hours 100 150 650 Customers served 35 90 450 Required:1. Use the firm’s current costing system to calculate the unit costof each product. 2. Use the activity-based cost system to calculatethe unit cost of each product.