Hot Potato Company manufactures two products, Product 2 and Product 8. Product 8 is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product 2. Product 8 is the more complex of the two products, requiring two hours of direct labour time per unit to manufacture compared to one hour of direct labour time for Product 2. Product 8 is produced on an automated production line.

Overhead is currently assigned to the products on the basis of direct labour-hours. The company estimated it would incur a total of $450,000 in manufacturing overhead costs and produce 7,500 units of Product 8 and 30,000 units of Product 2 during the current year. Unit costs for materials and direct labour are:

Product 2 Product 8

Direct Labour 10 20

Direct Material 12 25

Required:

a. Compute the predetermined overhead rate under the current method of allocation and determine the unit product cost of each product for the current year. (5 marks)

b. The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below: (5 marks)

Expected Activity

Activity Costs Pools Estimated Overhead Costs Product 2 Product 8 Total

Machine set-ups required $180,000 600 1,200 1,800

Purchase orders issued 38,382 500 100 600

Machine-hours required 92,650 6,800 10,200 17,000

Maintenance requests issued 138,968 693 907 1,600

$450,000

Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year.