(Activity-based costing) Eloquence Publishing is concerned about the prof¬ itability of its paperback dictionaries. Company managers are considering producing only the top-quality, hand-sewn dictionaries with gold-edged pages. Eloquence is currently assigning the $1,000,000 of overhead costs to both types of dictionaries based on machine hours. Of the overhead, $400,000 is utilities related and the remainder is primarily related to quality control inspectors’ salaries. The following information about the products is also available:

a. Determine the total overhead cost that is being assigned to each type of dictionaiy using the current allocation system.

b. Determine the total overhead cost that would be assigned to each type of dictionary if more appropriate cost drivers were used.

c. Should the company stop producing the regular dictionaries? Explain.LO1.

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Regular Hand-Sewn Number produced 1,000,000 700,000 Machine hours 85,000 15,000 Inspection hours 5,000 25,000 Revenues $3,200,000 $2,800,000 Direct costs $2,500,000 $2,200,000