The lolcos plant of the Argo Nautical Corporation manufactures three types of nautical equipment: rain coats, hats, and golden fleece jackets. Jason, the CEO of Argo, Corp. is concerned about the profitability of the products they produce. The plant currently uses a traditional costing system, but is considering changing to one of two more refined cost systems. Targeted selling prices are 125% of total product costs. Actual market prices are $339.75 for rain coats, $395 for hats, and $425 for the fleece jackets. The details of the three costing systems follows: 1. The traditional system allocates total overhead to the products using direct labor hours (note: direct labor hours exclude setup time). 2. The refined costing system recognizes that part of the overhead is allocated to the number of production runs (setup costs), where a portion is related to direct material costs (receiving and inspection costs and material handling charges), while the remainder (machining costs, engineering, quality assurance, packaging and shipping) is associated with the machine hours. Therefore, under the refined system, the total overhead cost pool is disaggregated into three smaller pools: Set-up cost, material-related overhead, and machine-related overhead. Each cost pool is then allocated based on different cost driver; production runs, direct material costs, and machine hours, respectively. 3. The activity based costing system considers the consumption of overhead even further. Under the activity based costing system, the components of overhead are allocated to the product lines on the basis of the percentages given in Exhibit 1, with the exception of machine costs, which are allocated on the basis of machine hours.Exhibit 1: Product Information Rain Coats Hats Fleece Jackets Units 8,000 16,000 4,000 Runs 1 4 10 DM ($/unit) $45.00 $90.00 $25.00 DL (excl. set-up) (hrs/unit) 4 5 3 DL and setup wage ($/hr) 25 25 25 setup time (hrs./run) 12 12 12 Machine time (hrs./unit) 1.25 1.5 2 Engineering costs 30% 40% 30% Receiving and inspection 8% 27% 65% Material and Handling 9% 30% 61% Qualiuty assurance 10% 20% 70% Packaging and shipping 3% 26% 71% Exhibit 2: Manufacturing Overhead Machining costs (maintenance, deprecaitiosn, computer support, electricity $1,840,000 Setup time $4,500 Engineering $600,000 Receiving and Insp Mat $225,000 Material handling $575,000 Quality Assurance $413,000 Packaging and shipping $275,000 Total $3,932,500