Red Corporation manufactures a variety of products. In the past, Red has been using a traditional costing system in which the predetermined overhead rate was 150% of direct labor cost. Selling prices had been set by multiplying total product cost by 200%. Sensing that this system was distorting costs and selling prices, Red has decided to switch to an activity-based costing system for manufacturing overhead costs using three activity cost pools. Selling prices are still to be set at 200% of unit product cost under the new system. Information on these cost pools for next year are as follows:





Activity Cost Pool

Activity Measure

Estimated Activity

Estimated Overhead Cost



Machine Setups.................

Number of setups

400

$150,000



Quality Control....................

Number of inspections

1,500

$180,000



Other Overhead..................

Machine hours

30,000

$480,000




Information (on a per unit basis) related to Model #36 are as follows:




Model #36







Direct material cost................................

$540







Direct labor cost......................................

$600







Number of setups...................................

3







Number of inspections..........................

3







Number of machine hours...................

8

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