Question

Decorative Doors, Inc. produces two types of doors, interior and exterior. The company’s simple costing system has two direct-cost categories (materials and labor) and one indirect-cost pool. The simple costing system allocates indirect costs on the basis of machine-hours. The owners are curious about how an ABC system would affect their product costing decisions. After analyzing the indirect-cost pool for Decorative Doors, the owners identify five activities as generating indirect costs: production scheduling, material handling, machine setup, assembly, and inspection. Decorative Doors collected the following data related to the indirect-cost activities: Activity Activity cost Activity allocation base Production scheduling $135,000 Production runs Material handling $ 67,500 Material moves Machine setup $ 37,500 Machine setups Assembly $ 90,000 Machine-hours Inspection $120,000 Number of inspections Total indirect costs Decorative Doors collected the following data for each door model related to the indirect-cost activities: Interior doors Exterior doors Production runs 40 60 Material moves 275 400 Machine setups 50 75 Machine-hours 4,000 8,000 Number of inspections 275 125 How much more overhead is allocated to interior doors if Decorative Doors changes its costing system from the existing simple system to activity-based costing?

Group of answer choices $120,000 $143,007.52 $ 6,992.48 $59,000

Answer 1