1. Olivia and her supervisor will meet with the CFO to discuss Olivia's findings and explain the major differences between the activity-based and traditional costing systems. Your team will help Olivia by preparing no more than 5 - 10 speaking points for her presentation.

Olivia just got her accounting degree and started working for Mainely Lobster Inc., a company known for their delicious footlong lobster rolls. Shortly after the pandemic started, the company discontinued its restaurant business. They now focus on delivering wholesale orders of fresh lobster rolls locally, and frozen lobster rolls across the country. Olivia is a management trainee in the CFO's office; one of her responsibilities is to aggregate cost information for the company's products. Olivia noticed that the company has been using the traditional costing system for decades and is very concerned with this practice. All manufacturing overhead costs are allocated across products using a plant-wide predetermined overhead rate of $50 per direct labor hour. Olivia. She mentioned to her superior that it is not appropriate for the company to use the traditional costing system because different products require different indirect overhead resources. For example, under the traditional system, all costs associated with accommodating local customers' special requests for fresh lobster rolls are part of manufacturing overhead costs and therefore allocated across products based on direct labor hours. However, frozen lobster rolls are prepared from the preset recipe, so there are no customers' special requests to handle. Given that traditional costing systems may result in significant cost distortions when determining products costs, Olivia's supervisor asked her to explore the potential for implementing activity-based costing. Olivia started with the company's 2021 traditional income statement. The company only had two products: fresh lobster rolls and frozen lobster rolls. Olivia would like to compare the two products' product margins under the activity-based costing system with their gross margins under our current traditional costing system