Demski Company has used a volume based cost allocation system for many years. The company uses direct labor hours to assign overhead costs to individual products A and B. Budgeted factory overhead costs for the year are $300,000 and the budgeted labor hours are 10,000. After attending a seminar to learn the potential benefits of adopting an activity-based costing system (ABC), Ted Demski, the president of Demski Company, is considering implementing an ABC system. Upon his request, the controller at Demski Company has compiled the following information for analysis:

Cost Pool Factory Overhead Costs Activity Cost Driver Expected Activity Level

Machine Setup $100,000 Setup hours 1,000

Inspection 50,000 Inspection Hours 2,500

Power 50,000 Kilowatt Hours 25,000

Supervision 100,000 Direct Labor Hours 10,000

Total Overhead Cost $300,000

Demski manufactures two types of product, A and B, for which the following information is available:

Product A Product B

Units Produced and Sold 5,000 10,000

Direct Materials $200,000 $250,000

Direct Labor Costs $80,000 $150,000

Direct Labor Hours 3,000 7,000

Setup Hours 700 300

Inspection Hours 1,500 1,000

Power (Kilowatt Hours) 12,500 12,500

1. Calculate the activity cost rate

2. Calculate the unit cost for each of the two products using the proposed ABC system

3. Calculate the total manufacturing cost of the two products