Absorption Costing Versus ABC Pioneer Pharmaceutical Company produces three drugs: Varnacin, Kresacin, and Hannacyn belonging to the anti-viral family of medications. Since its inception four years ago, Pioneer has used a direct labor-hour-based system to assign manufacturing overhead costs to products Hugh Elliott, the president of Pioneer, has just read about activity-based costing in a trade journal. With some curiosity and interest, he asked his financial controller, Matilda Dodge, to form an interdisciplinary committee to examine differences in product costs between the firm's current costing methods and activity-based costing systems Pioneer has the following budget information for the year Varnacin Cost of direct materials Cost of direct labor Number of direct labor-hours Number of capsules manufacture Number of capsules sold Kresacin Hannacyn 246,000 S 318,000 S 309,600 300,000 S 280,800 S 315,600 8,800 800,000 780,000 8,640 1,200,000 1,100,000 8.200 400,000 360,000 The ABC committee has identified the following cost pools and has allocated them to total overhead cost of $288,320 as follows Budgeted Bugeted verhead Cost Driver Activity Cost Pool Cost Driver Cost Volume Setup hours S79,200 26,250 31,640 42,250 84,480 24,500 $ 288,320 Machine setup Workers Lab hours Inspection-hours Customers served n/a 2.000 1,500 1,400 1,300 800 Plant manage ment Lab equipment maintenance Quality inspection Expediting orders Other TOTAL OVERHEAD