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

		Activities		Cost Drivers		Total Cost
1.		Material handling		Number of requisitions		$40,000
2.		Machine set-ups		Number of set-ups		27,500
3.		Quality inspections		Number of inspections		27,000
						$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 set-ups		200			300			500
Number of inspections		200			400			600

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