Siegel Company manufactures a product that is available in both a deluxe model and a regular model. The company has manufactured the regular model for years. The deluxe model was introduced several years ago to tap a new segment of the market. Since introduction of the deluxe model, the companys profits have steadily declined and management has become increasingly concerned about the accuracy of its costing system. Sales of the deluxe model have been increasing rapidly.

Manufacturing overhead is assigned to products on the basis of direct labor-hours. For the current year, the company has estimated that it will incur $5,374,500 in manufacturing overhead cost and produce 12,000 units of the deluxe model and 111,000 units of the regular model. The deluxe model requires 1.0 hours of direct labor time per unit, and the regular model requires 0.5 hour. Material and labor costs per unit are as follows:

	Model
	Deluxe			Regular
Direct materials	$	152		$	112
Direct labor	$	19		$	10

Required:

2. Management is considering using activity-based absorption costing to apply manufacturing overhead cost to products. The activity-based system would have the following four activity cost pools:

Activity Cost Pool	Activity Measure	Estimated Overhead Cost
Purchasing	Purchase orders issued	$	244,200
Processing	Machine-hours		3,030,000
Scrap/rework	Scrap/rework orders issued		703,800
Shipping	Number of shipments		1,396,500
		$	5,374,500

	Expected Activity
Activity Measure	Deluxe	Regular	Total
Purchase orders issued	440	880	1,320
Machine-hours	20,200	30,300	50,500
Scrap/rework orders issued	575	460	1,035
Number of shipments	5,880	8,820	14,700