I need help with my homework. It's going to be applicable to an exam I'll have to take.

This question asks you to compare a "traditional" (single driver) overhead application with an ABC overhead application.

Forth Company fishes the Firth River and prepares fish for food. It has two products: Fresh and Frozen.

Basic information is as follows:

Proportion of

driver used in:

Overhead FreshFrozen

ActivityPoolPool costCost driverFishFish

1. Unloading fish from boat$300,00060,000 loads77%¹23%

2. Utilities for filleting assembly line$24,000100,000 gallons

of water75%25%

3. Equipment maintenance$330,00020,000 machine

hours33%67%

4. Setup of packaging $280,000500 setups20%80%

Total$934,000

Direct labor proportions40,000 DLH75%25%

¹ What this means is that 77% of the loads, or 46200 loads, are associated with Fresh Fish and 23% are associated with Frozen Fish.

The company currently uses direct labor hours to allocate all the Overhead costs in a single pool. There are 30,000 (75%) direct labor hours worked on the Fresh Fish and 10,000 (25%) direct labor hours worked on the Frozen Fish.

1. The company is considering changing its cost drivers from direct labor hours to two drivers: loads and gallons of water. Will this have a significant impact on the product costing compared to the current method of allocating based on direct labor hours? Explain, with your evidence, why or why not.
2. The company is considering having the four separate pools based on the above descriptions of the Activities and their cost drivers. The company has been finding that competitors always have lower sales prices for Fresh Fish and that competitors cannot match the low prices that Forth offers for Frozen Fish, so the company is starting to implement a strategy of getting out of the Fresh Fish business and expanding the Frozen Fish business. Will the information from the ABC method provide information relevant to this decision and strategy - explain.
3. Which of the results, based on the ABC method or the "traditional" method, do you find more credible? And why?