Siegel Corporation manufactures a product available in both a regular and a deluxe 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 $5,184,000 in overhead costs would be incurred for an estimated 48,000 direct labour hours. The deluxe model requires 3.2 hours of direct labour per unit, and the regular model requires 0.8 hours of direct labour per unit. Materials and labour costs per unit follow: Deluxe Regular Direct materials cost per unit .......... Direct labour cost per hour ........... $150 14 $112 16 The number of units produced are 5000 for Deluxe and 40000 for Regular. Required: a). Compute the predetermined overhead rate using direct labour hours as the basis for allocating overhead costs to products. Compute the unit product cost for one unit of each model (3.5 marks) b). An intern suggested that the company should 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 driver Estimated overhead costs Activity level Deluxe Regular Purchase orders (number of orders) $476.800 1,184 1,200 Rework requests (number of requests) 562.400 810 1,440 Product testing (number of tests) 908,000 5,000 6,350 Machine related (machine hours) 3236,800 15,240 25,220 $5,184,000 Assume that the actual activity is as expected for the year. Using activity-based costing, compute the unit product cost for one unit of each model (6.5 marks) c). Can you identify a possible explanation for the company's declining profits? If so, what is it? (Max 150 words, 3 marks)