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25 MARKS Question 2: The job costing system at Smith's Custom Framing has five indirect cost pools (purchasing, material handling, machine maintenance, product inspection, and packaging). The company is in the process of bidding on two jobs; Job 215, an order of 15 intricate personalized frames, and Job 325, an order of 6 standard personalized frames. The controller wants you to compare overhead allocated under the current simple job-costing system and a newly-designed activity- based job-costing system. Total budgeted costs in each indirect cost pool and the budgeted quantity of activity driver are as follows: 2 Budgeted Quantity Budgeted Overhead Activity Driver of Activity Driver NOTE: ACTIVITY DRIVER means 'COST DRIVER Purchasing $ 70,000 Purchase orders processed 2,000 Material handling 87,500 Material moves 5,000 Machine maintenance 237,300 Machine-hours 10,500 Product inspection 18,900 Inspections 1,200 Packaging 39,900 Units produced 3,800 10 $453,600 11 12 Information related to Job 215 and Job 325 follows. Job 215 incurs more batch-level costs because it uses core types of materials that need to be purchased, moved, and inspected relative to Job 325. 13 14 Job 215 Job 325 15 Number of purchase orders 25 16 Number of material moves 10 17 Machine-hours 40 18 Number of inspections 19 Units produced 15 20 21 22 REQUIRED: 23 1. Compute the total overhead allocated to each job under a simple costing system, where overhead is allocated based on machine-hours. 24 2. Compute the total overhead allocated to each job under an activity-based costing system using the appropriate activity drivers. 25 3. Explain why Smith's Custom Framing might favor the ABC job-costing system over the simple jobcosting system, especially in its bidding process