Twista Manufacturing has the following activities and activity costs per year: Machining ($20 000); Forklifting ($10 000); machine setup ($32 000) and quality inspection ($40 000). The operation starts with setting up the machines; each batch of products requires a different setup. This is followed by machining, where the cost of machining varies directly with the number of machine hours. Forklifts are used to move the work in progress around. Because quality is important, an inspection is carried out for each batch of products.

The following information is also available:

Number of machine hours per year: 20 000 machine hours

Number of forklift moves per year: 500 moves

Number of batches per year: 4000 batches

Each year, Twista Manufacturing produces 5000 units of Product X. These units of Product X require 5000 machine hours, 120 moves and 500 batches to produce. The direct materials and direct labour together cost $15 per unit of Product X.

Which of the following activities should be grouped together in the same activity cost pool?

Machining and machine set up

Fork lifting and quality inspection

Machining and fork lifting

Machine set up and quality inspection