Gibson Networking develops software for internet applications. It offers a wide variety of different software from simple programs that enable new users to create personal Web pages to complex commercial search engines. Currently Gibson is planning to develop the following new applications: 1) X-PAGE software for developing personal Web pages 2) X-SECURE commercial security and firewall software. Gibson has just hired you to pilot a study which compares development cost for these two products using two different methods: the traditional allocation method and the activity-based costing method. At present, a single-allocation base costing system allocates indirect costs to products at $104 per programmer hour. The proposed ABC allocation system will be based on the following information: 1) ACTIVITY: Applications Development ESTIMATED COST: $1,5000,000 ALLOCATION BASE: New Applications ESTIMATED USE OF ALLOCATION BASE: 3 New Applications 2) ACTIVITY: Content Production ESTIMATED COST: $ 2,700,000 ALLOCATION BASE: Lines of code ESTIMATED USE OF ALLOCATION BASE: 9 million lines 3) ACTIVITY: Testing ESTIMATED COST: $270,000 ALLOCATION BASE: Testing hours ESTIMATED USE OF ALLOCATION BASE: 1,500 testing hours XPAGE requires 480,000 lines of code and 70 hours of testing. X-SECURE requires 7,200,000 lines of code and 420 hours of testing. Gibson expects to produce and sell 25,000 units of X-PAGE and 9 units of X-SECURE. REQUIRED: 1) Compute the cost allocation rate for each activity. 2) Use the activity-based cost allocation rates to compute the indirect cost of each unit of X-PAGE and X-SECURE. 3) X-PAGE requires 14,000 programmer hours, while X-SECURE requires 21,000 programmer hours. Compute the indirect costs allocated to X-PAGE and X-SECURE under the original system. 4) Compare the activity-based costs per unit to the unit costs from the simpler original system. Explain the differences in the costs using the two different methods. 5) List three disadvantages that Gibson might find in using the activity-based system rather than the traditional costing system.