McMahon Company would like to institute an activity-based costing system to price products. The company's Purchasing Department incurs indirect costs of $550,000 per year and has six employees. Purchasing has determined the three major activities that occur during the year.

Activity

Activity Cost Driver

Activity Cost

Total Activity

for the Year

Product A

Product B

Issuing purchase orders

# of purchase orders

$150,000

15,000

10,000

5,000

Reviewing receiving reports

# of receiving reports

$175,000

10,000

6,000

4,000

Making phone calls

# of phone calls

$225,000

50,000

30,000

20,000

1. Compute the cost driver rates for each of the 3 activity centers if ABC were used.

2.Determine the amount of the Purchasing Department's indirect overhead costs that should be assigned toProduct Ausing ABC.