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-Hours per Unit AnnualProduction Total Direct 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

Required:

1.Assume that the company continues to use direct labor-hours as the base for applying overhead cost to products.

a. Compute the predetermined overhead rate.

b. Compute the unit product cost of each model.