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Moss Manufacturing has just completed a major change in its quality control (QC) process. Previously, products had been reviewed by QC inspectors at the end of each major process, and the company's 10 QC inspectors were charged as direct labor to the operation or job. In an effort to improve efciency and quality, a computer video QC system was purchased for $250,000. The system consists of 15 video cameras and specialized software. The new system uses cameras stationed by QC engineers at key points in the production process. Each time an operation changes or there is a new operation, the cameras are moved, and a new master picture is loaded onto the server by a QC engineer. The camera takes pictures of the units in process, and the computer compares them to the picture of a \"good\" unit. Any differences are sent to a QC engineer who removes the bad units and discusses the aws with the production supervisors. The new system has replaced the 10 QC inspectors with two QC engineers. The operating costs of the new QC system, including the salaries of the QC engineers, have been included as factory overhead in calculating the company's plantwide factory overhead rate, which is based on direct labor dollars. The company's president is confused. His vice president of production has told him how efficient the new system is, yet there is a large increase in the factory overhead rate. The computation of the rate before and aer automation is shown below. Before After Budgeted overhead 3% l,900,000$2, 100,000 Budgeted direct labor 1,000,000 700,000 Budgeted overhead rat6190% 300% \"Three hundred percent,\" lamented the president. \"How can we compete with such a high factory overhead rate?\" QUESTIONS A. Dene factory overhead, and cite three examples of typical costs that would be included in factory overhead. B. Explain why companies develop factory overhead rates. C. Explain why the increase in the overhead rate should not have a negative nancial impact on Moss Manufacturing. D. Explain, in the greatest detail possible, how Moss Manufacturing could change its overhead accounting system to eliminate confusion over product costs. E. Discuss how an activity-based costing system might benet Moss Manufacturing