Puget World, Inc., manufactures two models of television sets, the N 800 XL model and the N 500 model. Data regarding the two products follow:

Direct Labor- Annual Total Direct

Hours per Unit Production Labor-Hours

Model N 800 XL 3.0 3,000 units 9,000

Model N 500 2.0 10,000 units 20,000

29,000

Additional information about the company follows:

a. Model N 800 XL requires $60 in direct materials per unit, and Model N 500 requires $20.

b. The direct labor wage rate is $22 per hour.

c. The company has always used direct labor-hours as the base for applying manufacturing overhead cost to products.

d. Model N 800 XL is more complex to manufacture than Model N 500 and requires the use of special equipment. Consequently, the company is considering the use of activity-based costing to assign manufacturing overhead cost to products. Three activity cost pools have been identified as follows:

Activity Cost Pool Activity Measure Estimated Overhead Cost

Machine setups Number of setups $ 320,000

Special processing Machine-hours 260,000

General factory Direct labor-hours 1,305,000

$1,885,000

Expected Activity

Activity Measure Model N 800 XL Model N 500 Total

Number of setups 80 170 250

Machine-hours 16,000 0 16,000

Direct labor-hours 9,000 20,000 29,000

2. Assume that the company decides to use activity-based costing to assign manufacturing overhead cost to products.

a(1). Compute the activity rate for each activity cost pool.

a(2). Determine the amount of overhead cost that would be assigned to each model using the activity-based costing system.

b. Compute the unit product cost of each model.