Nasir Manufacturing produces two products in its Sharjah plant: Crystal and Glass. Since inception, Nasir has used only one manufacturing overhead pool to accumulate costs. Manufacturing overhead has been allocated to products based on direct labor hours. Until recently, Nasir was the sole producer of Glass and was able to dictate the selling price. However, last year Zayed Products began marketing a comparable product at a price below the standards costs developed by Nasir. Market share has declined rapidly, and Nasir must decide whether to meet the competitive price or to discontinue the product line. Recognizing that discontinuing the product line would place additional burden on its remaining product, Crystal. Nasir is planning to use the activity-based costing (ABC) to determine if it would show a different cost structure for the two products. The three major indirect costs for manufacturing the products are purchase orders, power usage and setup costs and handling materials. A decision was made to separate the manufacturing department costs into three activity centers: 1) Inspection using number of purchase orders as the cost driver, 2) Fabricating using machine hours as the cost driver and 3) Assembly using number of setups as the cost driver. The annual budget before separation of manufacturing overhead is shown below in the table: Total Cost Product line Crystal Class Number of units 10,000 20,000 Direct labor 3 hours unit 4 hours unit Number of direct labor hours 80,000 hours Total Direct Labor AED 320,000 Direct Material AED 2 unit AED 3/unit Manufacturing Overhead AED 480,000 The cost structure after separation of overhead into activity pools is shown below. Direct Labor Inspection 20% Fabricating 30% Assembly 50% Direct Material 35% 25% 40% Manufacturing overhead 30% 20% 50% The activity base rates for the products are shown below: Activity Base Crystal Glass Number of Purchase Orders 1,200 6,800 Machine hours per unit 4 $ Number of setups 2,000 23,000