Hercules Industries manufactures two types of electrical power units, custom and standard, which involve four overhead activities-production setup, procurement, quality control, and materials management. An activity analysis of the overhead revealed the following estimated costs and activity bases for these activities:

The activity-base usage quantities for each product are as follows:

a. Determine an activity rate for each activity.

b. Assign activity costs to each product, and determine the unit activity cost using the activity rates from part (a).

c. Assume that each product required one direct labor hour per unit. Determine the perunit cost if factory overhead is allocated on the basis of direct labor hours.

d. Explain why the answers in parts

(b) and

(c) are different.

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Activity Cost Production setup Procurement $ 64,000 108,000 Activity Base Number of setups Number of purchase orders (PO) Quality control 150,000 Number of inspections Materials management 100,000 Number of components Total $422,000