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

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)

			Estimated 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	1600
		$450,000

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