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Fact Pattern:
"Louis Diamonds manufactures diamond earrings and pendants. The company uses activitybased budgeting and has established diamond inspection as one of its cost pools with number of diamonds used as its cost driver. Inspection supplies for each diamond inspected are $0.35. For the upcoming year, the company originally believed it would produce and sell 10,000 pendants containing one diamond and 5,000 sets of earrings containing two diamonds, resulting in the following inspection cost per diamond."
Salary of inspector $60,000
Equipment costs 3000
Inspection supplies 7000
Total $70,000
Cost per diamond $3.50
"If the company now believes it will only be able to produce and sell 8,000 pendants (in addition to the earrings), the inspection cost per set of earrings would be"