Ch17 Case Study Assignment - Part 2 Currently Paradise Industries is considering changing to an Activity Based Costing System due to increased sales, increased number of products, and a more complex manufacturing process with many activities. Paradise Industries has the following overhead costs and cost drivers. Compute the overhead rate for each cost pool: Activity Cost Pools Cost Driver Cost Driver Activity (b) 750 orders Overhead Rate (a/b) 20 Orders 6000 setups Est. Overhead (a) $15,000 $216,000 $2,750,000 $1,125,000 $2,000,000 Ordering and Receiving Machine Setup Machining Assembly Inspection 36 Setups Machine hours 250,000 MH 11 1 Parts Inspections 1,500,000 parts 20,000 inspections 100 Traditional Cost Pool Direct Labor Hours $6,106,000 122,120 DL Hours 50 Product A Activity Product C Activity Product B Activity 250 Orders 425 Orders 75 Orders 1,000 Setups Activity Cost Pool Ordering and Receiving Machine Setup Machining Assembly Inspection 2,000 Setups 85,000 Machine hours 3,000 Setups 125,000 Machine hours 900,000 Parts 13,000 Inspections 400,000 Parts 40,000 Machine hours 200,000 Parts 2,000 Inspections 5,000 Inspections Traditional Cost Pool 80,500 DL Hours 16,620 DL Hours 25,000 DL Hours Compute the total overhead costs assigned to Product B using activity based costing: Activity Based Costing Product B Activity Overhead Rate (a) (b) Ordering and Receiving 250 $20 Machine Setup 2000 $36 Machining 85000 $11 Assembly 4000000 $0.75 Inspection 5000 $100 Using ABC costing, Total Overhead Costs assigned to Product B Total Overhead Costs (a x b) $5,000 $72,000 $935,000 $300,000 $500,000 Compute the total overhead costs assigned to Product B using traditional costing: Traditional Costing Product B Activity Overhead Rate Total Overhead Costs (a) (b) (a xb) Traditional Cost Pool 16620 50 831,000 Compute and compare overhead: Current Traditional OH Product B OH Costs 831,000 Proposed ABC OH Increase/Decrease 981,000 1,812,000 b. Explain Activity Based Costing and describe three activities for ABC costing. Include two limitations in using ABC Costing in comparison to Traditional Costing. c. Explain and compare Product Level Activities to Facility Level Activities. Provide two examples for Product Level Activities and two examples for Facility Level Activities. * Upload and attach your completed excel file to your posting