The Doubletree Division of McDowell Company manufactures many high-volume products and many low-volume products. The division's existing costing system allocates all machine-related overhead based on machine hours and all the remaining overhead based on direct labor hours. However, a recent study determined that machine setup costs and material handling costs are primarily related to the number of setups performed, and other materials-related costs are primarily related to the number of purchase orders issued. The division does not keep significant materials inventories on hand. Selected information follows for the division's most recent year of operations.

Required:
(1) Calculate the two overhead rates in the existing cost system for the most recent year.
(2) Create an ABC system, making only the changes suggested by the results of the recent study. Give your answer in the form of a list of cost pools. Beside the name of each pool, list the driver that is to be used to allocate that cost pool to products.
(3) Calculate the overhead (driver) rates that the ABC system should use for the most recent year.

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Indirect costs: Machine related: Machine operation Machine setup 65,000 27,000 $92,000 Total machine-related overhead Materials related: 30,000 35,000 $ 65,000 $215,000 Material handling... Other overhead 4,000 25,000 1,000 700 20,000 Machine hours. Setups Purchase orders...