The Chromosome Manufacturing Company produces two products, X and Y. The company president, Gene Mutation, is con- cerned about the fierce competition in the market for product X. He notes that competitors are selling X for a price well below Chromosome's price of $12.70. At the same time, he notes that competitors are pricing product Y almost twice as high as Chromosome's price of $12.50. Mr. Mutation has obtained the following data for a recent time period:

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Product X Product Y Number of units 11,000 3,000 Direct materials cost per unit $3.23 $3.09 Direct labor cost per unit $2.22 $2.10 Direct labor hours. 10,000 2,500 Machine hours Inspection hours. 2,100 2,800 80 100 Purchase orders 10 30 Mr. Mutation has learned that overhead costs are assigned to products on the basis of direct labor hours. The overhead costs for this time period consisted of the following items: Overhead Cost Item Inspection costs. Purchasing costs Machine costs Total Amount $16,200 8,000 49,000 $73,200 Required: 1. Using direct labor hours to allocate overhead costs, determine the gross margin per unit for each product. 2. Using activity-based costing, determine the gross margin per unit for each product. 3. How do your answers to Parts (1) and (2) help explain the observations made by Gene Mutation about competitors?