Peart proposed a revised cost system where they first identify material-related overhead (the cost of receiving and handling material), and allocate that cost to each product line based on the cost of material. Second, he suggested that they measure set-up labor, remove it form total overhead, and assign it to each product line. Finally, he suggested that they substitute machine hours for labor dollars as the basis for allocating the remaining factory overhead.

Exhibit 2: Monthly Production and Cost Summary Product Lines Guitars Bass Guitar Drum Kits Monthly production 300 units 500 units 200 units 1 runs 5 runs 10 runs Monthly shipments 300 units 500 units 200 units 1 shipments 7 shipments 22 shipments Material and Labor Costs Monthly Total Material 6 components components 10 components 3 @ $20 - $60 2 0420 -$40 40$10 - $40 3 @ $50 - $150 20940-$90 6096 -430 198240- $240 Total $210 $120 3210 $185,000 Labor ($10 per hour) Sat-up Labor 10 hours por production run 10 hours por production run 24 hours por production run 300 hours Direct Labor 25. hours por unit 50. hours por unit "0. hours por unit 40,500 hours Machine Hours 10. hours por unit 10. hours por unit 5. hours por unit 9.000 hours Manufacturing Overhead BuWOH $20 000 Materials handling $200,000 Enginooring $100,000 Packing and $60,000 Burddys Viaintonanoa $301000 Machine 4270.000 Depreciation (10 your life Total $680,000