Handy Fabricators is exploring adoption of an activity-based costing system. In a first step towards implementation the company identified four cost pools - fabricating, assembly, quality control, and paten development. Employees classified as indirect labor were asked to estimate the percentage of their time spent on activities in each of the four pools. If they spent time on activities outside of these pools, that time was identified as organization sustaining and assigned to a fifth pool. You have been asked to calculate the total costs in each pool and to calculate an activity rate using the following activity cost drivers.

Activity Cost PoolActivity DriverAnnual Activity Driver VolumeFabricatingMachine hours500,000 machine hoursAssemblyDirect labor hours275,000 direct labor hoursQuality ControlBatches48,000 batchesPatent DevelopmentNumber of patents200 patents

Required:

• 1. Calculate the total indirect labor cost included in each of the five pools - fabricating, assembly, quality control, paten development, and organization sustaining.
  2. Using the activity drivers identified above, calculate the indirect labor activity rate for each activity cost pool. Round your answers to two decimal places.
  3. Manufacturing details for one of Handy's products is presented below. Using the activity rates you developed in part B, calculate the total indirect labor cost and indirect labor cost per unit incurred to produce the product.

Activity Driver Usage8,000 machine hours12,000 direct labor hours300 batches2 patents2,000 units produced

4. The production manager has suggested that the manufacturing processes would run more smoothly if several small batches could be combined into one larger batch. He believes that with careful production planning the number of batched could be reduced to 40,000 per year. What effect will this have on the activity rate for the quality control activity cost pool?