[The following information applies to the questions displayed below.] ADA Pharmaceutical Company produces three drugsDiomycin, Homycin, and Addolinbelonging to the analgesic (pain-killer) family of medication. Since its inception four years ago, ADA has used a direct labor hourbased system to assign manufacturing overhead costs to products. Eme Weissman, the president of ADA Pharmaceutical, 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 firms current costing and activity-based costing systems. ADA has the following budget information for the year: Diomycin Homycin Addolin Cost of direct materials $ 209,000 $ 269,000 $ 262,000 Cost of direct labor 254,000 238,000 267,000 Number of direct labor hours 7,240 6,840 2,040 Number of capsules 1,040,000 504,000 304,000 ADA has identified the following activities and cost drivers and has assigned them a total overhead cost of $202,000. Activity Cost Driver Budgeted Overhead Cost Budgeted Cost Driver Volume Machine setup Setup hours $ 16,400 1,640 Plant management Number of Workers 36,400 1,240 Supervision of direct labor Direct labor hours 46,400 16,400 Quality inspection Inspection hours 50,800 1,070 Order expediting Customers served 52,000 665 Total overhead $ 202,000 Takedo selected the cost drivers with the following justifications: SETUP HOURS: The cost driver of setup hours is used because the same product takes about the same amount of setup time regardless of size of batch. For different products, however, the setup time varies. NUMBER OF WORKERS: Plant management includes plant maintenance and corresponding managerial duties that make production possible. This activity depends on the number of workers. The more workers involved, the higher the cost. DIRECT LABOR HOURS: Supervisors spend their time supervising production. The amount of time they spend on each product is proportional to the direct labor hours worked. INSPECTION HOURS: Inspection involves testing a number of units in a batch. The time varies for different products but is the same for all similar products. NUMBER OF CUSTOMERS SERVED: The need to expedite production increases as the number of customers served by the company increases. Thus, the number of customers served by ADA is a good measure of expediting production orders. Takedo gathered the following information about the cost driver volume for each product: Diomycin Homycin Addolin Setup hours 220 620 820 Number of workers 220 420 620 Direct labor hours 7,240 6,840 2,040 Inspection hours 170 220 720 Customers served 49 104 520 3. The two cost systems provide different results; give several reasons for this. Why might these differences be strategically important to ADA Pharmaceutical? How does ABC add to ADAs competitive advantage