Sheridan Manufacturing Company has supported a research and development (R&D) department that has for many years been th- sole contributor to the company's new farm machinery products. The R&D activity is an overhead cost center that performs servic 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 Sheridan to hire its R&D department for special projects. Because the costs of operating the R&D department have been spiraling uncontrollably, Sheridan's management is considering entertaining these outside approaches t 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 in-house users of the department's services.. R&D activities fall into four pools with the following annual costs. Market analysis $1,200,000 Product design 2,480,000 Product development 3,510,000 Prototype testing 1,450,000 Activity analysis determines that the appropriate cost drivers and their usage for the four activities are: 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 Total Estimated Drivers Hours of analysis 15,000 hours Number of designs 2,480 designs Number of products Number of tests 90 products 500 tests Compute the activity-based overhead rate for each activity cost pool. Activity Based Activities Cost Pools Overhead Rates Market analysis per hour Product design per design Product development $ per product Prototype testing per test