Lionel Corporation manufactures two products, Product B and Product H. Product H is a fairly new product, having been developed as an attempt to enter a market closely related to that of Product B. Product H is the more complex of the two products, requiring 2.0 hours of direct labour time per unit to manufacture, compared to 1.0 hour of direct labour time for Product B. Product H 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 $450,000 in manufacturing overhead costs and produce 7,500 units of Product H and 30,000 units of Product B during the current year. Unit costs for materials and direct labour are:

	Product B	Product H
Direct Materials	$12	$25
Direct Labour	$10	$20

Required:

Compute the predetermined overhead rate under the current method of allocation, and determine the unit product cost of each product for the current year. (8 marks)

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:

Activity Cost Pools	Estimated Overhead Costs	Expected Activity	Total
Product B	Product H
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
Total	$450,000

Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year.(10 marks)

Was Product B being over-costed or under-costed under the current method? By how much in total? (2 marks)