After her meeting with Cole, Brenda requested an investigation of the production costs and comparative efficiency. She received approval to hire a consulting firm to make an independent investigation. After a three-month assessment, the consulting firm provided the following information on the plant's production activities and costs associated with the two products: Prime cost per unit Part #433 Part # 582 Production 480,000 units 90,000 units Selling Price $ 32.45 $28.00 Overhead per unit* $ 13.96 $ 6.28 $ 8.62 $ 6.38 Number of production runs 105 runs 210 runs Receiving orders 600 orders 1,000 orders Machine hours 130,000 machine hours 70,000 machine hours Direct labor hours 240,000 direct labor hour 20,250 direct labor hours Engineering hours 5,000 engineering hours 5,000 engineering hours Material moves moves 400 moves * Calculated using a plantwide rate based on direct labor hours. This is the current way of assigning the plant's overhead to its products. 500 The consulting firm recommended switching the overhead assignment to an activity-based approach. It maintained that activity-based cost assignment is more accurate and will provide better information for decision making. To facilitate this recommendation, it grouped the plant's activities into homogeneous sets with the following costs: Overhead Setup costs Machine costs Receiving costs Engineering costs Materials-handling costs Total $ 275,000.00 $2,005,000.00 $ 2,035,000.00 $ 2,050,000.00 $ 900,000.00 $ 7,265,000.00 1. Overhead rate = $ 27.92 per DLH Estimated overhead Estimated labor hrs. $ 7,265,000 260,250 Overhead Assignment DLH per unit Rate 27.92 27.92 Part #433 Part # 582 = = Part #433 Part #582 + Overhead Gross Margin Selling price Less unit cost: Part #433 Part # 582 Unit gross margin Prime Cost 8.62 6.38 2. Activity Cost Activity Capacity Activity Rate Activity Setup Machine Receiving Engineering Materials handling Activity Driver Production runs Machine hours Receiving orders Engineering hours Material moves