4. Isadore, Inc. manufactures drawing pens and coloring pencils to be used as gifts or souvenirs. Overhead costs are currently allocated using direct labor hours, but the controller has recommended an activity based costing using the following data:

			Cost Driver Volume
Activity	Cost driver	Cost	Pencils	Pens
Setting Up	Number of set ups	75,000	20	30
Inspecting	Number of parts	24,000	5	7
Packing and shipping	Number of boxes shipped	43,200	50,000	70,000
Total overhead		142,200

Required:

a) Compute the overhead to be allocated to each product using activity based costing

b) Compute the overhead to be allocated to each product using labor hours as the allocation base. Assume that the number of hours required to assembler each box is .15 for pencil and .2 for pens and that 50,000 boxes and 70,000 boxes were produced for the pencils and pens, respectively.

c) Compare the result of the two methods. Should the company follow the controller's recommendation?