Markham Company makes two products: Basic Product and Deluxe Product. Annual production and sales are 2,400 units of Basic Product and 2,000 units of Deluxe Product. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Basic Product requires 0.3 direct labor hours per unit and Deluxe Product requires 0.6 direct labor hours per unit. The total estimated overhead for next period is $99,335.

The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost poolsActivity 1, Activity 2, and General Factorywith estimated overhead costs and expected activity as follows:

Activity Cost Pool Activity 1 Activity 2 General Factory Total Estimated Overhead Costs $30,660 17,550 51,125 $99,335 Expected Activity Basic Deluxe Product Product 1,500 750 2,100 720 1,200 Total 2,250 2,450 1,920 350 (Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor hours.) The predetermined overhead rate (ie., activity rate) for Activity 2 under the activity-based costing system is closest to: O $7.16. $7.31. $40.54. $51.74