Mallory Chemical Corporation produces two products: A and B. The company's expected factory overhead costs for the coming year are as follows:

All labor costs \(\$ 10\) per hour; materials cost \(\$ 1.80\) per pound for product \(\mathrm{A}\) and \(\$ 2.40\) per pound for product B.
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A. Calculate the predetermined overhead rate based on direct labor hours and based on machine hours.
B. Calculate the unit cost of each product if overhead is applied on the basis of direct labor hours.
C. Calculate the unit cost of each product if overhead is applied on the basis of machine hours.
D. Compare the unit costs you have just calculated. Why does the choice of an activity base affect unit cost? What implications would the selection of an activity base for allocating overhead have on managerial decisions? What factors should management consider in choosing an activity base for assigning costs?

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Overhead Category Utilities Indirect materials Estimated Costs $ 300.000 150,000 Indirect labor 50,000 Depreciation 100,000 Materials handling and storage 200,000 Repairs and maintenance 200,000 Supplies 180,000 Insurance 120,000 Other Total 50,000 $1,350,000 Its expected levels of production activity are as follows: Product A Product B Machine hours 35,000 15,000 Direct labor hours 20,000 25,000 Number of units produced 10,000 5,000 Direct materials used, in pounds 75,000 125,000