quite as demanding as for RED pens.We seem to be spending a lot more time onpurchasing and scheduling activities and justkeeping track of where we stand on existing,backlogged, and future orders. The new computersystem we got last year helped a lot to reduce theconfusion. But I am concerned about rumors I keephearing that even more new colors may beintroduced in the near future. I don’t think we haveany more capability to handle additional confusionand complexity in our operations.OperationsClassic produced pens in a single factory. The major taskwas preparing and mixing the ink for the different-colored pens. The ink was inserted into the pens in asemiautomated process. A final packing and shippingstage was performed manually.Each product had a bill of materials that identified thequantity and cost of direct materials required for theproduct. A routing sheet identified the sequence ofoperations required for each operating step. Thisinformation was used to calculate the labor expenses foreach of the four products. All of the plant's indirectexpenses were aggregated at the plant level and allocatedto products on the basis of their direct labor content.Currently, this overhead burden rate was 300% of directlabor cost. Most people in the plant recalled that not toomany years ago the overhead rate was only 200%.Activity-Based CostingJane Dempsey had recently attended a seminar of herprofessional organization in which a professor had talkedabout a new concept, called activity-based costing(ABC). This concept seemed to address many of theproblems she had been seeing at Classic. The speaker hadeven used an example that seemed to capture Classic'ssituation exactly. The professor had argued that overhead should not beviewed as a cost or a burden to be allocated on top ofdirect labor. Rather, the organization should focus onactivities performed by the indirect and support resourceof the organization and try to link the cost of performingthese activities directly to the products for which theywere performed. Dempsey obtained several books andarticles on the subject and soon tried to put into practicethe message she had heard and read about.