Air United, Inc. manufactures two products: missile range instruments and space pressure gauges. During April, 50 range instruments and 300 pressure gauges were produced, and overhead costs of $94,500 were estimated. An analysis of estimated overhead costs reveals the following activities.

Activities				Cost Drivers		Total Cost
1.		Materials handling		Number of requisitions		$40,000
2.		Machine setups		Number of setups		21,500
3.		Quality inspections		Number of inspections		33,000
						$94,500

The cost driver volume for each product was as follows.

Cost Drivers		Instruments		Gauges		Total
Number of requisitions		400		600		1,000
Number of setups		200		300		500
Number of inspections		200		400		600

(c) Write a memorandum to the president of Air United explaining the benefits of activity-based costing.