Gamble Manufacturing produces two modems, one for laptop computers and the other for desktop computers. The production process is automated, and the company has found activity-based costing useful in assigning overhead costs to its products. The company has identified five major activities involved in producing the modems.

Activity measures for the two kinds of modems follow.

Required
a. Compute the cost per unit of laptop and desktop modems, assuming that Gamble made 300 units of each type of modem.
b. Explain why laptop modems cost more to make even though they have less material cost and are smaller than desktop modems.

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Allocation Base Allocation Rate Activity Materials receiving & handling Production setup Assembly Quality inspection Packing and shipping Cost of material Number of setups Number of parts Inspection time Number of orders 2% of material cost $100.00 per setup $5.00 per part $1.50 per minute $10.00 per order