Sharp Paper Inc. has three paper mills, one of which is located in Memphis, Tennessee. The Memphis mill produces 300 different types of coated and uncoated specialty printing papers. Management was convinced that the value of the large variety of products more than offset the extra costs of the increased complexity (this tends to be typical thinking of management). During 20X1, the Memphis mill produced 120,000 tons of coated paper and 80,000 tons of uncoated paper. Of the 200,000 tons produced, 180,000 were sold. 50 products account for 80% of the tons sold. Thus, 250 products are classified as low-volume products. Lightweight lime hopsack in cartons (LLHC) is one of the low-volume products. LLHC is produced in rolls, converted into sheets of paper, and then sold in cartons. In 20X1, the cost to produce and sell one ton of LLHC was as follows: Direct materials: Furnish (3 different pulps) Additives (11 different items) Tub size Recycled scrap paper Total direct materials Direct labor 2,225 pounds $ 450 200 pounds 500 75 pounds 10 (296 pounds) (20) $ 940 $ 450 Overhead: Paper machine ($100 per ton x 2,500 pounds) Finishing machine ($120 per ton x 2,500 pounds) Total overhead Shipping and Warehousing Total Manufacturing and Selling cost $ 125 150 $ 275 $300 $1,965 Overhead is applied by using a two-stage process. First, overhead is allocated to the paper and finishing machines by using the direct method of allocation with carefully selected cost drivers. Second, the overhead assigned to each machine is divided by the budgeted tons of output. These rates are then multiplied by the number of pounds required to produce one good ton.