Weston Corporation manufactures a product that is available inboth a deluxe and a regular model. The company has made the regularmodel for years; the deluxe model was introduced several years agoto tap a new segment of the market. Since introduction of thedeluxe model, the company’s profits have steadily declined, andmanagement has become concerned about the accuracy of its costingsystem. Sales of the deluxe model have been increasing rapidly.

Overhead is applied to products on the basis of directlabor-hours. At the beginning of the current year, managementestimated that $3,200,000 in overhead costs would be incurred andthe company would produce and sell 8,000 units of the deluxe modeland 40,000 units of the regular model. The deluxe model requires2.5 hours of direct labor time per unit, and the regular modelrequires 1.5 hour. Materials and labor costs per unit are givenbelow:

  

	Deluxe			Regular
Direct materials cost per unit	$	40.00		$	20.00
Direct labor cost per unit	$	20.00		$	10.00

   

Required:
1-a.	Compute the predetermined overhead rate using directlabor-hours as the basis for allocating overhead costs toproducts.

1-b.	Compute the unit product cost for one unit of each model.

   

2.	An intern suggested that the company use activity-based costingto cost its products. A team was formed to investigate this idea.It came back with the recommendation that four activity cost poolsbe used. These cost pools and their associated activities arelisted as follows:

			Expected Activity
Activity Cost Pool and Activity Measure		Estimated Overhead Cost	Deluxe	Regular	Total
Purchase orders (number of orders)	$	65,000	400	900	1,300
Rework requests (number of requests)		285,000	700	1,675	2,375
Product testing (number of tests)		245,000	7,100	5,150	12,250
Machine related (machine-hours)		2,605,000	5,000	8,025	13,025
	$	3,200,000

     

Compute the activity rate for each of the activity costpools.

3.	Assume that actual activity is as expected for the year. Usingactivity-based costing, do the following:

   

a.	Determine the total amount of overhead that would be applied toeach model for the year.

    

b.	Compute the unit product cost for one unit of each model.(Do not round intermediate calculations. Round your finalanswers to 2 decimal places.)