MOD Pharmaceutical Company produces three drugsDiomycin, Homycin, and Addolinbelonging to the analgesic (pain-killer) family of medication. Since its inception four years ago, MODhas used a direct labor hour-based system to assign manufacturing overhead costs to products.

Eme Weissman, the president of MODPharmaceutical, has just read about activity-based costing in a trade journal. With some curiosity and interest, she asked her financial controller, Takedo Simon, to examine differences in product costs between the firm's current costing and activity-based costing systems.

MOD has the following budget information for the year:

III Cost of direct materials $203,000 $263,000 $256,000 Cost of direct labor 248,000 232,000 261,000 Number of direct labor hours 7,180 6,780 1,980 Number of capsules 980,000 498,000 298,000 Activity Machine setup Plant management Supervision of direct labor Quality inspection Order expediting Total overhead Cost Driver Setup hours Number of Workers Direct labor hours Inspection hours Customers served Budgeted Overhead Cost $ 15,800 35,800 45,800 50,200 51,400 $ 199,000 Budgeted Cost Driver Volume 1,580 1,180 15,800 1,040 635 Setup hours Number of workers Direct labor hours Inspection hours Customers served 190 190 7,180 14-0 43 590 390 6,780 190 98 790 590 1,980 690 490