Computing product cost with given activity allocation rates Paton Manufacturing produces two modems, one for laptop computers and the other for desktop computers. The production process is automated, and the company has found activity-based costing useful in assigning overhead costs to its products. The company has identified five major activities involved in producing the modems.

L.O. 3 Activity Allocation Base Allocation Rate Materials receiving & handling Cost of material 2% of material cost Production setup Number of setups $100.00 per setup Assembly Number of parts $5.00 per part Quality inspection Inspection time $1.50 per minute Packing and shipping Number of orders $10.00 per order Activity measures for the two kinds of modems follow.

Labor Material Number Number Inspection Number Cost Cost of Setups of Parts Time of Orders Laptops $2,500 $10,000 30 42 7,200 min. 65 Desktops 2,100 15,000 12 24 5,100 min. 20 Required

a. Compute the cost per unit of laptop and desktop modems, assuming that Paton made 300 units of each type of modem.

b. Explain why laptop modems cost more to make even though they have less material cost and are smaller than desktop modems.