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Mockolate is a manufacturer of a "completely synthetic chocolate substitute" that is "even better than chocolate." The company produces and sells two products: Mockolate chip cookies and Mockolate Mousse. Currently the company uses a traditional costing system to allocate manufacturing overhead to production based on machine hours. Management is considering switching to ABC to improve costing accuracy.

In their analysis of manufacturing overhead, management has identified two activities and cost pools: Machining and Machine Setup. $99,000 of the budgeted manufacturing overhead relates to the machine setup activity. Machine setup overhead costs are driven by number of setups.

The projected production levels for the upcoming period are 1,000 Mockolate chip cookies and 8,000 dishes of Mockolate Mousse. The following information was compiled for the product lines:

Vhich of the following statements is correct with regard to the above information? Under Activity-Based Costing, 50\% of the machine setup manufacturing overhead costs is allocated to the Mockolate chip cookie product line. Under the current costing system, 20% of the total overhead costs are allocated to the Mockolate chip cookie product line. The current costing system is overcosting both the Mockolate chip cookie line and the Mockolate mousse line with respect to machine setup manufacturing overhead costs. None of the above statements are correct. The cost distortion per unit for both the Mockolate chip cookie and Mockolate mousse product lines with respect to the machine setup manufacturing overhead costs is equal

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