Fluctuating cost driver rates, effect on markup pricing Toki Company carefully records its costs because it bases prices on the cost of the goods it manufactures. Toki also carefully records its machine usage and other operational information. Manufacturing costs are computed monthly and prices for the next month are determined by adding a 20% markup to each product's manufacturing costs. The support activity cost driver rate is based on machine hours, shown below.

Profits have been acceptable up until the past year, but Toki has recently faced increased competition. The marketing manager reported that Toki's sales force finds the company's pricing puzzling. When demand is high, the company's prices are low, and when demand is low, the company's prices are high. Normal capacity is 1500 machine hours per month. The normal capacity is exceeded in some months by operating the machines overtime beyond regular shift hours. Monthly machine-related costs, all capacity related, are $70,000 per month.

(a) Compute the monthly support cost driver rates thatToki used last year.

(b) Suggest a better approach to developing cost driver rates for Toki, and explain why your method is better.

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MONTH ACTUAL MACHINE HOURS January February 1350 1400 March 1500 April 1450 May 1450 June 1400 July 1400 August 1400 September 1500 October 1600 November 1600 December 1600