(4-32) The Morrison Company carefully records its costs because it bases prices on the cost of the goods it manufactures. Morrison Company 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 cost driver rate is based on machine hours as follows:

Profits have been acceptable until the past year, when Morrison began to face increased competition.The marketing manager reported that Morrison's sales force finds the comapny's pricing puzzling. When demand is high, the company's prices are low, and when the demand is low, the prices are high. Practical capacity is exceeded in some months by operating the machines overtime beyond regular shift hours. Monthly machine-related overhead costs, all fixed, are 70,000 per month.

(A) Compute the monthly overhead cost driver rates that Morrison used last year.

(B) Suggest a better approach to developing cost driver rates for Morrison and explain why your method is better.

ACTUAL MACHINE HOURS ACTUAL MACHINE HOURS 1,350 1,400 1,500 1,450 1,450 1400 July February 1,400 April 1,600 1,600