George Jefferson, the accounting manager at MI, has just returned from a conference on activity-based costing and thinks MI should consider implementing an ABC system. George has identified five primary activities taking place in the production facilities at MI, has traced Year 2 overhead costs to each activity, and has identified a cost driver for each activity as follows:

Estimated Year 2 Overhead Costs Using ABC
Activity	Monthly Overhead Cost	Cost Driver
Materials delivery and handling	$4,620	Number of shipments
Molding and cleaning	$3,150	Number of molds
Painting and finishing	$5,670	Direct labor hours
Packaging	$1,260	Number of figurines
Quality inspections	$2,100	Number of inspections

      Based on information about production needs and the differences for each type of product (replicas are not uniform in size, dolls need more inspection, etc.) George has estimated the following activity for each cost driver:

Â	Dolls	Replicas	Total
Number of shipments	52	108	160
Direct labor hours	87,500	7,000	94,500
Number of figurines	352,800	25,200	378,000
Number of molds	2,500	500	3,000
Number of inspections	80,000	4,000	84,000

Required:

A. Using the preceding activities and cost drivers, calculate a predetermined overhead rate for each activity. HINT: Note you will have to annualize the OH costs

B. Using ABC, how much estimated overhead would be allocated to a doll? to a replica?

C. Compare the estimated overhead allocation using ABC to the estimated overhead allocation using direct labor hours (HINT: use POHR from Part 2B x actual labor hours above). What do you think is the cause of the differences?

D. What are some of the advantages and disadvantages of using ABC in this case?

E. Would you suggest that MI adopt an ABC system? Why or why not?

F. Does the information provided by the ABC system give you some insight into areas of possible cost reduction? What areas have the greatest potential for cost