Problem 2 The controller for the XZY Company has established thefollowing overhead pools and cost drivers: Overhead Cost PoolBudgeted Overhead Cost Cost Driver Machine setups $100,000 Numberof setups Material Handling $50,000 Units of Raw Material Qualitycontrol inspections $37,500 Number of Inspections Other overheadcosts $100,000 Machine Hours Overhead Cost Pool Budgeted Level forCost Driver Pool Overhead Rate Machine setups 100 setups $1,000 persetup Material Handling 50,000 units $1 per unit Quality controlinspections 1,000 inspections $37.50 per inspection Other overhead20,000 machine hours $5 per machine hour Order number 542 has thefollowing production requirements: Machine setups 4 setups RawMaterial 10,000 units Inspections 10 inspections Machine hours 500machine hours

a. Compute the total overhead that should be assigned to Ordernumber 542 using Activity Based Costing.

b. Suppose that the XYZ Company were to use a singlepredetermined overhead rate based on machine hours. Compute theoverhead rate per machine hour and the overhead that would beassigned to Order number 542.

c. Which method results in a more accurate allocation ofoverhead and why? Why is this so important?