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.