Rocky Fountain Corporation makes two types of fountainsSolar and Electric. Data concerning these two product lines appear below:

SolarElectric

Direct materials per unit$15.00$9.00

Direct labor cost per unit$6.00$3.00

Direct labor-hours per unit0.6 DLH0.4 DLH

Estimated annual production and sales15,000 units45,000 units

Solars are more complex to manufacture than Electrics and each unit requires more time on the special equipment.

The company has a conventional costing system in which manufacturing overhead is applied to units based on direct labor-hours.

Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below:

Estimated total manufacturing overhead$486,000

Estimated total direct labor-hours27,000DLHs

Required:

1-a. Compute the predetermined overhead rate based on direct labor-hours.

1-b. Using the predetermined overhead rate and other data from the problem, determine the unit product cost of each product.

2. The company is considering replacing its conventional costing system with an activity-based costing system that would assign

its manufacturing overhead to the following four activity cost pools:

Estimated Overhead CostExpected Activity

Activity Cost Pools and Activity MeasuresSolarElectricTotal

Machine setups (setups)$18,00012080200

Special processing (machine hours)$ 180,0002,0001,0003,000

General factory (direct labor-hours)$288,0006,0008,40014,400

Total manufacturing overhead cost$486,000

Determine the activity rate for each of the activity cost pools.

3. Using the activity rates and other data from the problem, determine the unit product cost of each product.

4. Assuming the new cost information is more accurate, what management decisions might change based on that new information.