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

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