Siegel Corporation manufactures a product available in both a deluxe and a regular model. The company has made the regular model for years; the deluxe model was introduced several years ago to capture a new segment of the market. Since the introduction of the deluxe model, the company's profits have steadily declined, and management has become concerned about the accuracy of its costing system. Sales of the deluxe model have been increasing rapidly.

Overhead is applied to products on the basis of direct labour-hours. At the beginning of the current year, management estimated that $2,610,400 in overhead costs would be incurred and the company would produce and sell 15,000 units of the deluxe model and 63,616 units of the regular model. The deluxe model requires 2.8 hours of direct labour time per unit, and the regular model requires 1.5 hours. Materials and labour costs per unit follow:

	Deluxe	Regular
Direct materials cost per unit	$195	$99
Direct labour cost per hour	22	16

Question 2

2.	An intern suggested that the company use activity-based costing to cost its products. A team was formed to investigate this idea, and it came back with the recommendation that four activity cost pools be used. These cost pools and their associated activities follow:

Activity Cost Pool and Activity Measure	Estimated Overhead Cost					Activity
					Deluxe	Regular	Total
Purchase orders (number of orders)	$		186,200		700	1,200	1,900
Rework requests (number of requests)			214,200		300	600	900
Product testing (number of tests)			350,000		5,000	12,500	17,500
Machine related (machine-hours)			1,860,000		26,000	36,000	62,000
	$		2,610,400

Compute the activity rate (i.e., predetermined overhead rate) for each of the activity cost pools.

Purchase orders

per order

Rework requests

per request

Product testing		per test
Machine related		per MH