For many years, Zapro Compnay manufacturing a single product called a mono-relay. Then three years ago, the company automated a portion of its plant at the same time introduced a second product called a bi-relay that has become increasingly popular. The bi-relay is a more complex product, requiring one hour of direct labor time per unit to manufacture and extensive machining in the automated portion of the plant. The mono-relay requires only 0.75 hours of direct labor time per unit and only a small amount of machining. Manufacturing overhead costs are currently assigned to products on the basis of direct labor-hours. Despite the growing popularity of the company's new bi-relay, profits have been declining steadily. Management is beginning to believe that there may be a problem with the company's costing system. Maters and labor costs per unit are as follows: Direct Materials Mono-relay ($35) Bi-relay ($48) Direct labor (.75 hours and 1.0 hours @ $12/hour) Mono-relay ($9) Bi-relay ($12) Management estimates that the company will incur $1,000,000 in manufacturing overhead costs during the current year and 40,000 units of the bi-relay will be produced and sold. REQUIRED:

1.) Compute the predetermined manufacturing overhead rate assuming that the company continues to apply manufacturing overhead cost on the basis of direct labor hours. Using this rate and other data from the problem, determine the unit product cost of each product.

2.) Management is considering using activity-based costing to apply manufacturing overhead cost to products for external financial reports. The activity-based costing system would have the following.

Activity Cost Pool	Activity Measure	Estimated Overhead Cost
Mainining parts inventory	Number of part types	$180,000
Processing purchase orders	Number of purchase orders	90,000
Quality Control	Number of test runs	230,000
Machine Related	Machine-hours	500,000
		total: 1,000,000
	Expected Activity
Activities Measure	Mono-relay	Bi-relay	Total
Number of part types	$75	150	225
Number of purchase orders	800	200	1000
Number of test runs	2,500	3,250	5750
Machine-hours	4,000	6,000	10,000

Determine the activity rate for each of the four activity cost pools.

3.) Using the activity rates you computed in part (2) above, do the following:

a.) Determine the total amount of manufacturing overhead cost that would be applied to each product using the activity-based costing system. After these totals have been computed, determine the amount of manudacturing ocerhead cost per unit of each product.

b.) Compute the unit product cost of each product.

4.) From the data you have developed in parts 1-3 above, identify factors that may account for the company's declining profits.