DP, Inc. produces parts for industrial grinders. The typical product goes through two processes, machining and finishing, before being packaged and shipped to the customer. DP holds no finished goods inventory. All production is triggered by a customer order. The company uses a traditional cost system and applies overhead to jobs based on machine hours. The cost accounting manager at DP has been considering updating its cost system given the growth in overhead costs. He has collected data on the major categories of overhead. The estimated annual costs follow. Overhead Category Material handling Machining Finishing Shipping Setups Total Annual Cost $12,000,000 24,000,000 8,000,000 6,000,000 14,000,000 $64,000,000 As part of the effort to determine whether it would be worthwhile to update the cost system, the cost accounting manager has collected data on three representative jobs completed in April. Data on those jobs follow. Direct material Machine hours Units Production runs Orders Job 0404 Job 0407 $ 39,360 $ 68,000 Job 0411 $125,200 1,720 2,120 4,000 1,120 1,320 2,120 1 3 1 2 1 1 The cost accounting manager has a tentative design for an ABC system to replace the current cost system. His system has five activities. Data on the activities and the cost drivers for each activity are given as follows. Activity Material Handling Machining Finishing Cost Driver Material cost Machine hours Units Annual Cost Driver Volume $24,000,000 800,000 125,000