CLIIAII Case Study Analysis - Fall 202B 25 MARKS [5%] ALLOW 3 PER GROUP The president of MacDonald Inc., has asked the Controller, Laura Spence, to review the way the company is costing its products. The company uses manufacturing cost as a basis for setting prices and has determined that overall, the selling prices of its products seem to be out of line with the prices of competitors. For example, the very popular Black Diamond model is priced much lower than competitors whereas all other models are priced well above the products of competitors. r'rs a result, profits are declining along with sales for some models. The president has a gut feeling that this all has something to do with how the ski boards are costed (in comparison with competitors). The company currently uses a single plantwide rate to charge overhead to the various company products. This method no longer seems to be providing the precision needed in determining costs and setting prices. Ms. Spence has therefore called together your group, the Special Analysis Group {part of the Accounting Deparhnent}, to look into other possibilities for charging overhead to the products. In particular, she wants your group to explore another alternative the direct method of allocating service department costs to specific operating deparhneots and to allocate variable and xed costs separately. She wants your analysis to focus on one product line in particular, theDouhfe Black Model. She asks you to complete the analysis in the form of a long memo and submit it to her. It should include the following items: 1. A schedule showing the calculation for the current single plant wide overhead rate and the related overhead cost for the Black Diamond model. 2. A schedule shova'ng the calculations using a separate overhead rate for each department assuming the direct method is used and assuming separate allocations for variable and xed costs. Assume the xed overhead is allocated based on the percentage of peakperiod requirements. In computing the rates, use a machine hours basis in the Finishng Department and a threct labour hours basis in the other two deparhnents. 3. Determine the overhead cost in total for the Black Diamond Model in each departroent and in total for all deparhnents . 4. Compare this wir the answer in part one and explain in detail why there is a difference in the total product cost between the two methods. Explain how this might also account for the apparent over costing and overpricing of the company's other products. lGive your opinion on which method is recommended and why. '3. Ms. Spence also wanE you to suggest any other alternative methods or approaches to costing (that you have studied in Chit-\"Ll or crass) that might lead to more precise product costs and explain why these other choices might be superior to simply adopting the direct method of service department allocations. Briey describe why any other alternatives might be superior