Rubrics, Inc. The Chief Financial Officer (CFO) at Rubrics Inc., a small size regional hardware manufacturing firm, has become aware of the ongoing imbalance between the products' budgeted and actual costs. In a competitive environment, an imbalance between pricing and costing can be expensive. The historical accounting approach has been to allocate overhead to products using a single direct cost driver, usually direct labor hours or direct labor dollars. This practice sometimes leads to inaccuracies since indirect costs are not incurred equally across products. For example, Rubrics' CFO forecasted $1,000,000 in direct labor costs and $2,000,000 in overhead last year, resulting in an overhead rate of 200 percent. For cach dollar of direct labor charged, $2.00 of overhead was allocated. The shortcoming of this costing method is that overhead costs fail to reflect varying manufacturing intensity between products. The firm's management is under pressure from the board to expand marketing into the global economy via the Internet. Because of the board's direction, the CFO is considering implementing ABC as a means for improving the cost assignment process, which in turn should make Rubrics more competitive on the global stage. He knows that the adoption rate of ABC in small and medium enterprises (SME's) like Rubrics has been slow in the past. Furthermore, the CFO also realizes that the ABC method is more complicated and costlier than traditional cost accounting (TCA). The CFO's first step is to identify the activity cost drivers from which overhead rates are assigned per cost driver. The rates are estimated by dividing budgeted costs per driver by the anticipated resource requirements for each cost driver. For instance, rent could be allocated based on the square footage occupied by inventory in producing a given product or service. For example, the CFO at Rubrics Corporation estimates that next year's rental costs to be $1,000,000 for their 100,000 square foot factory. The CFO can calculate the rental overhead rate by dividing $1,000,000 by 100,000 resulting in an overhead rate of $10 per square foot. After calculating the overhead rates for each activity driver (e.g., rent, depreciation, maintenance), the rates are applied to the individual requirements of each product. The objective of ABC is to align actual consumption with specific product/service costs. The ABC approach is normally associated with multiple products or services using shared and often common indirect resources as in the case at Rubrics Corporation. The CFO believes that a key benefit of ABC is that products requiring higher concentrations of overhead costs are revealed, allowing management to focus attention on opportunities for reducing those costs or to price products, more appropriately. Despite the complexity, the CFO knows that the benefits of ABC to Rubrics can be significant. Some specific benefits include: 1) the ability to distinguish profitable from unprofitable products, 2) the opportunity to establish cost controls to eliminate unnecessary costs, and 3) the potential for improved product pricing. However, prior to implementing ABC, the CFO wishes to consider whether the cost savings from more accurate budget allocations are greater than the costs of implementing and maintaining the new system. Rubrics Inc. produces four products: widgets, gadgets, smidgets, and smadgets. Table 1 summarizes the direct labor, overhead, and direct material costs associated with these products. Presently the greente overhead rate is 200 percent of direct labor