Micro Magic, Inc. was founded by Thomas Magic in 2001 Tom has been the Comp angs president since then. The Company manufactures three products for the computer industry. Infonnahon about the Companys annual sales are shown below: Product G annual sales, 8 000 units Product T: annual sales, 15 000 units Product W : annual sales, 4 000 units While Micro Magic has consistently won recognition for its quality service and products, the changing enviromnent of the industry has placed downward pressure on margins. The management of Mcro Magic has decided to focus only on those products in which the company has a competitive cost advantage. Micro Magic uses a traditional product costing system with manuficturing overhead applied on the basis of direct labour costs. The unit prcuiuct costs have been computed as shown in Exhibit I. EXHIBIT 1 Unit Product Costs of Three Products Raw m aterial Direct labour Manufacturing overhead* Product s 3500 16.00 14000 (0.8hr@ Product (06Y.@ noo 105.00 $169.50 (0.4 *Calculation of predetermined overhead rate: