Superman Ltd. manufactures two products called LaserEye and Hurricane. The Hurricane is a more complex product, requiring 0.80 hours of direct labour time per unit to manufacture and extensive machining support. The LaserEye requires only 0.40 hours of direct labour time per unit and only a small amount of machining support. Manufacturing overhead costs are currently assigned to products on the basis of direct labour hours. Direct material and direct labour costs per unit are as follows:

LaserEye

Hurricane

Direct Material

$30

$50

Direct Labour

$6 (0.4 hours at $15 per hour)

$12 (0.8 hours at $15 per hour)

Management estimates that the company will incur $912,000 in manufacturing overhead costs during the current year and 60,000 units of the LaserEye and 20,000 units of the Hurricane will be produced and sold.

Required:

a. Compute the predetermined manufacturing overhead rate assuming that the company continues to apply manufacturing overhead cost on the basis of direct labour hours and the unit product cost of each product

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

Expected Annual Activity

Activity drivers

LaserEye

Hurricane

Number of part types

600

900

Number of purchase orders

2000

800

Number of test runs

500

1750

Machine hours

1600

8400

Activity cost pool

Activity drivers

Estimated overhead costs

Maintaining parts inventory

Number of part types

$225,000

Processing purchase orders

Number of purchase orders

$182,000

Quality control

Number of test runs

$45,000

Machine related

Machine hours

$460,000

Required: Using activity based costing compute the unit product cost of each product.