QUESTION 4 For many years, Thomas Company manufactured a single duct called a LEC40. Then three cas ago, the company automated a portion of its plant and at the same time introduced a second pro called a LEC90 that has become increasingly popular. The LEC90 is a more complex prod requiring 0.80 hour of direct labor time per unit to manufacture and extensive machining in the automated portion of the plant. The LEC40 requires only 0.40 hour of direct labor time per unit and only a small amount of machining. Manufacturing overhead costs are currently assigned to products on the basis of direct labor hours. Despite the growing popularity of the company's new LEC90, profit has been declining steadily Management is beginning to believe that there may be a problem with the company's costing system. Material and labor costs per unit are as follows: Direct material Direct labor (0.40 hour and 0.80 hour @ 15,00 per hour) LEC40 30.00 6,00 LEC90 50.00 12,00 Management estimates that the company will incur 912,000 in manufacturing overhead costs during the current year and 60.000 units of thLEC40 and 20.000 units of the EC90 will be produced and sold. Required: a. Compute the predetermined manufacturing overhead rate assuming that the company continues to apply manufacturing overhead cost on the basis of direct labor hour. Using this rate and other data from the problem, determine the unit product cost for each product. b. Management is considering using activity based costing to apply manufacturing overhead cost to products for extemal financing reports. The activity based costing system would have the following four activity cost pools: Activity cost pool Maintaining parts inventory Processing purchase orders Quality control Machine related Number of part types Number of purchase orders Number of tests run Machine hours Estimated overhead cost 225,000 182,000 45,000 460.000 Activity measure Number of part types Number of purchase order Number of test run Machine hours Expected activity LEC40 LEC90 600 900 2,000 800 500 1.750 1.600 8,400 Total 1.500 2,800 2.250 10.000 Determine the activity rate (i.e. predetermined overhead rate) for each of the four activity cost pools Page 3 of 4