XYZ company manufactures chemicals used in radiological imaging systems.The company had originally used machine hours as the cost driver to developone 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.

Activity pool cost Budgeted overhead cost Cost Driver Budgeted Level for cost driver Activity pool rate

Material handling 40,000 Weight of raw materials in pounds 25,000 $1.60

Quality Assurance 20,000 Number of quality checks 1,000

Hazardous waste control 75,000 Weight of hazardous chemical used in pounds 7,500

Other overhead costs 240,000 Machine hours 75,000

Total Budgeted overhead cost $375,000

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 ABCapproach, what would be the pool rates for the activities you have identified above.I have computed the first activity pool rate above in column E and you should compute the remainder of the rates for the other 3 activities.

3.An order fora special chemical mix has the following production requirements:

Material handling 2000 pounds

Quality Assurance 5 inspections

Hazardous waste control 20 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. identifies factors that explain why the two product-costing systems result in differing costs. Which system do you recommend?Why?