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Expand Your Critical Thinking 17-02 (Part Level Submission) Ideal Manufacturing Company has supported a research and development (R&D) department that has for many years been the sole contributor to the company's new farm machinery products. The R&D activity is an overhead cost center that performs services only to in-house manufacturing departments (four different product lines), all of which produce agricultural/farm/ranch-related machinery products. The department has never sold its services to outside companies. But, because of its long history of success, larger manufacturers of agricultural products have approached Ideal to hire its R&D department for special projects. Because the costs of operating the R&D department have been spiraling uncontrollably, Ideal's management is considering entertaining these outside approaches to absorb the increasing costs. However, (1) management doesn't have any cost basis for charging R&D services to outsiders, and (2) it needs to gain control of its R&D costs. Management decides to implement an activity-based costing system in order to determine the charges for both outsiders and the in-house users of the department's services. R&D activities fall into four pools with the following annual costs. Market analysis Product design Product development Prototype testing $1,200,000 2,480,000 3,510,000 1,450,000 Activity analysis determines that the appropriate cost drivers and their usage for the four activities are: Activities Market analysis Product design Product development Prototype testing Cost Drivers Hours of analysis Number of designs Number of products Number of tests Total Estimated Drivers 15,000 hours 2,480 designs 90 products 500 tests (a) Compute the activity-based overhead rate for each activity cost pool. Activities Cost Pools Activity-Based Overhead Rates Market analysis per hour Product design per design Product development 09 per product Prototype testing 69 per test