XYZ company manufactures chemicals used in radiological imaging systems. The company had originally used machine hours as the cost driver to develop one predetermined overhead rate.
You have been recently hired by this company to review the costing of chemicals and realize that maybe a predetermined overhead rate does not give an accurate cost picture.
You remember discussing overhead cost issues in MBA641 and want to implement ABC, so you have done some research and come up with the following activity cost pools and cost drivers.
1. Analyze manufacturing overhead. 2. Develop a comparison of application of manufacturing overhead using a traditional and an ABC approach. 3. Recommend a course of action on how to apply manufacturing overhead.
Activity cost Pool	Budgeted Overhead Cost	Cost driver	Budgeted Level for cost Driver	Activity Pool Rate
Material handling	14,000	Weight of raw materials in pounds	50,000	$0.28
Quality Assurance	10,000	Number of quality checks	5,000
Hazardous waste control	20,000	Weight of hazardous chemical used in pounds	4,000
Other overhead costs	130,000	Machine hours	50,000
Total Budgeted overhead cost	$174,000
Required: Make sure you show your work or use cell references for all calculations. You will not earn credit if you just type in your answer.
1. Using the information above calculate the single predetermined overhead rate this company is using based on machine hours as the cost driver.
Predetermined overhead rate:
2. If the company uses the ABC approach, what would be the pool rates for the activities you have identified above.
I have computed the first activity pool rate above in column Eand you should compute the remainder of the rates for the other 3 activities.
3. An order for a special chemical mix has the following production requirements:
Material handling	2000	Weight of raw materials in pounds
Quality Assurance	10	Number of quality checks
Hazardous waste control	100	Weight of hazardous chemical used in pounds
Other overhead costs	1000	Machine hours
If the company is using the predetermined overhead rate based on machine hours, what is the overhead cost for this order?
Total Overhead cost of this order using a predetermined overhead rate
If the company is using the ABC method, what is the overhead cost for this order?
Material handling
Quality Assurance
Hazardous waste control
Other overhead costs
Total Overhead cost of this order using ABC
4. Write a short report (at least 75 words) that identifies factors that explain why the two product-costing systems result in differing costs.
Which system do you recommend? Why?
You need to include a reference other than the textbook that supports your recommendation. Make sure you include the reference in APA style.