Miami Beach Co. packages single-sized servings of sugar and sugar substitute for fast-food restaurants. The activities required to package sugar are fewer and less complex than for the sugar substitute. The direct costs of producing the two products are as follows:

	Sugar					Sugar Substitute
Direct materials	$	0.02					$	0.04
Direct labor		0.04						0.08

Overhead is currently assigned to the two products based on machine hours. The following information is provided regarding overhead costs:

Activity		Traceable Costs					Cost Driver				Sugar Line					Sugar Sub. Line						Total
Setup		$	50,000					No. of setups				125						125						250
Packing			120,000					No. of machine hrs.				10,000						40,000						50,000
Inspection			30,000					No. of batches				250						350						600
		$	200,000

1) Compute the predetermined overhead rate under the current method of overhead cost allocation. How much total overhead cost will be assigned to each product under the current system?

2) Compute the three activity rates that would be used in an activity-based system. How much total overhead cost will be assigned to each product under an ABC system?

3) Assuming an ABC system to be more precise, by how much does the company's current costing system over- or undercost the products? Be specific.