Zain Products manufactures fishing equipment for recreational uses. The plant produces the companys two versions of a special reel used for river fishing. The two models are the XY, a basic reel, and the ZM, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters.

Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $280,000. During that time, the company produced 12,000 units of the XY and 2,000 units of the ZM. The direct costs of production were as follows:

	XY	ZM	Total
Direct Materials	$100,000	$80,000	$180,000
Direct labor	$100,000	40,000	$140,000

Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for the last year were as follows:

Cost Driver	Costs	Activity Level
		XY	ZM	Total
Number of machine hours	$120,000	5,000	3,000	8,000
Number of production runs	70,000	10	10	20
Number of inspections	90,000	20	40	60
Total overhead	$280,000

Instructions:

1. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? (14 marks)
2. How much overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? (6 marks)