Kensington Electronics (KE) is a wholly owned subsidiary of CWD Enterprises, a global manufacturing company. Unlike most CWD companies, KE uses a traditional costing system to compute product costs. After the last review by CWD staff, the financial management at KE decided to consider switching to activity-based costing. The controllers staff at KE has identified classified manufacturing overhead costs for the next quarter into four overhead cost pools. They also identified an appropriate cost driver for each pool. Cost Pools Costs Activity Drivers Production setup $ 300,000 Production runs Fabrication 551,000 Machine-hours Certification 66,500 Certificates Quality assurance 315,000 Test-hours The company manufactures two basic products, which are components of navigation systems. The products are the NAV1 and NAV1-AV. Although similar, the NAV1-AV uses upgraded materials. In addition, the NAV1-AV needs to be certified for use in aircraft navigational equipment. All units produced are tested, but the tests are more extensive for the NAV1-AV model. The following are data for production for the next quarter: Products NAV1 NAV1-AV Total direct material costs $ 480,000 $ 200,000 Total direct labor costs $ 320,000 $ 100,000 Total machine-hours 10,000 4,500 Total test hours 4,000 3,000 Total number of production runs 20 20 Number of certificates 0 1 Number of units produced and shipped 4,000 1,000 Required: a. The current cost accounting system charges overhead to products based on machine-hours. What unit product costs will be reported for the two products if the current cost system continues to be used? b. What are the cost-driver rates for the four cost pools identified by the controller's staff? d. What unit product costs will be reported for the three products if the ABC system proposed by the controller's staff is adopted? e. How would the activities identified by the controller's staff be classified in terms of the levels of the cost hierarchy? Production setup Fabrication Certification Quality assurance