Erte, Inc., manufactures two models of high-pressure steam valves, the XR7 model and the ZD5 model. Data regarding the two products follow: Product Direct Labor-Hours Annual Production Total Direct LaborHours XR7 0.2 DLHs per unit 20,000 units 4,000 DLHs ZD5 0.4 DLHs per unit 40,000 units 16,000 DLHS 20,000 DLHs Additional information about the company follows: a. Product XR7 requires $35 in direct materials per unit, and product ZD5 requires $25. b. The direct labor rate is $20 per hour. c. The company has always used direct labor-hours as the base for applying manufacturing overhead cost to products. Manufacturing overhead totals $1,480,000 per year. d. Product XR7 is more complex to manufacture than product ZD5 and requires the use of special milling machine. Page 12 of 12 e. Because of special work required in (d) above, the company is considering the use of activity-based costing to apply overhead cost to products. Three activity cost pools have been identified and the first-stage allocations have been completed. Data concerning these activity cost pools appear below: Activity Cost Pool Activity Measure Estimated Total Cost Estimated Total Activity XR7 ZD5 Total Machine setups Number of setups $180,000 150 100 250 Special milling Machine-hours 300,000 1,000 0 1,000 General factory Direct labor-hours 1,000,000 4,000 16,000 20,000 $1,480,000 REQUIRED 1. Assume that the company continues to use direct labor-hours as the base for applying overhead cost to products. a. Compute the predetermined overhead rate (Label the rate correctly). (1 mark) b. Determine the unit product cost of each product. (4 marks) 2. Assume that the company decides to use activity-based costing to apply overhead cost to products. a. Compute the activity rate for each activity cost pool (label the rates correctly). (3 marks) b. Determine the unit product cost of each product. (6 marks)