Toys Company will soon start producing holiday reindeer dolls in his plant during July, August and September. For the purpose, the plant will expand its production capacity with a new machine, incurring additional overhead for $60,000 per year, with this additional capacity reserved for the production of the holiday doll. This additional capacity would sit idle from October to June.

1. Would you include the additional overhead in one of the five cost pools in Exhibit 3 or create an additional cost pool? Explain the reason for your answer.

2. Assume you decide to create an additional cost pool for this additional $60,000 of overhead. Assume machine hours are the appropriate cost driver. Between July and September, the actual level of machine hours is 1,000, versus a yearly practical capacity of 4,000 machine hours. You are deciding how to price this doll. Which of these two figures (1,000 vs 4,000 machine hours) would you use as denominator to compute the overhead rate for this additional cost pool?