College Supply Company (CSC) makes three types of drinking glasses: short, medium, and tall. It presently applies overhead using a predetermined rate based on direct labor-hours. A group of company employees recommended that CSC switch to activity-based costing and identified the following activities, cost drivers, estimated costs, and estimated cost driver units for year 5 for each activity center.

ActivityRecommended Cost DriverEstimated CostEstimated Cost Driver UnitsSetting up productionNumber of production runs$36,000 100runs Processing ordersNumber of orders 60,000 200orders Handling materialsPounds of materials 24,000 8,000pounds Using machinesMachine-hours 72,000 10,000hours Providing quality managementNumber of inspections 60,000 40inspections Packing and shippingUnits shipped 48,000 20,000units $300,000

In addition, management estimated 2,000 direct labor-hours for year 5.

Assume that the following cost driver volumes occurred in February, year 5.

ShortMediumTallNumber of units produced 1,000 500 400 Direct materials costs$6,000 $3,750 $3,000 Direct labor-hours 100 120 110 Number of orders 8 8 4 Number of production runs 2 4 8 Pounds of material 400 800 200 Machine-hours 500 300 300 Number of inspections 2 2 2 Units shipped 1,000 500 300

Direct labor costs were $30 per hour.

Required:

a. Compute a predetermined overhead rate for year 5 for each cost driver recommended by the employees. Also compute a predetermined rate using direct labor-hours as the allocation base. b. Compute the production costs for each product for February using direct labor-hours as the allocation base and the predetermined rate computed in requirement a. c. Compute the production costs for each product for February using the cost drivers recommended by the employees and the predetermined rates computed in requirement a. (Note: Do not assume that total overhead applied to products in February will be the same for activity-based costing as it was for the labor-hour-based allocation.)