Washie manufactures two types of products for washing vehicles: the washing mitt, and the polishing cloth. Up to this point, Washie has been utilizing traditional costing with one plant-wide overhead rate using machine hours as the allocation base. Management is considering ABC and has gathered information on the potential activity areas to be used.

Activity	Activity Measure	Estimated Manufacturing Overhead Cost
Design	Design hours	$12,000
Setups	Number of set-ups	$40,000
Materials Handling	Meters of fabric	$30,000
Production	Machine Hours	$250,000

During the year, the company sold 100,000 washing mitts and 50,000 polishing cloths. Direct costs are $8.00 for washing mitts and $2.00 for polishing costs. The company has determined the expected activity for each of the product lines to be:

Activity Measure	Washing Mitt	Polishing Cloth
# of design hours	50	5
# of setups	30	20
# of meters of fabric	4,000	1,000
# of machine hours	40,000	10,000

Compute the predetermined overhead rate using machine hours as the basis for allocating overhead costs to products.

1)

$5.00

2)

$6.64

3)

$8.30

4)

$33.20