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1.What are the signs that indicate that the existing product costing system maynot provide accurate product costs in Classic Pen Company?The new RED and PURPLE pens do seem more profitable than our BLUE andBLACK pens, but overall profitability is down and even the new products are notearning the margins we used to see from our traditional products. (complex productsare more profitable; overall profitability is declining; changeover (batch level cost) iscomplex differs by product)Currently this overhead burden rate was 300% of direct labor cost. Most people inthe plant recalled that not too many years ago the overhead rate was only 200%.(significant increase in overheads)Specialty colors not price sensitive2.Develop the Activity-Based Costing system for Class Pen Company.(a) What are the activities and their associated activity cost drivers that you wouldsuggest?Scheduling and handling production runs (batch level); cost drivers: number of