Handy Fabricators is exploring adoption of an activity-based costing system. In a first step towards implementation the company identified four cost pools—fabricating, assembly, quality control, and patent development. Employees classified as indirect labor were asked to estimate the percentage of their time spent on activities in each of these four pools. f they spent time on activities outside of these pools, that time was identified as organization sustaining and assigned to a fifth pool. You have been asked to calculate the total costs in each pool and to calculate an activity rate using the following activity cost drivers.

Required

a. Calculate the total indirect labor cost included in each of the five pools - fabricating, assembly, quality control, patent development, and organization sustaining.

b. Using the activity drivers identified above, calculate the indirect labor activity rate for each activity cost pool. Round your answers to two decimal places.

c. The production manager has suggested that the manufacturing processes would run more smoothly if several small batches could be combined into one larger batch. He believes that with careful production planning the number of batches could be reduced to 40,000 per year. What effect will this have on the activity rate for the quality control activity cost pool?

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Activity Cost Pool Activity Driver Annual Activity Driver Volume Fabricating Assembly Quality Control Patent Development Machine hours 500,000 machine hours 275,000 direct labor hours Direct labor hours Batches 48,000 batches Number of patents 200 patents