Refer to Exhibit 5-6. Suppose the appliance maker has two plants—the Salem plant and the Youngstown plant. The Youngstown plant produces only three appliances that are very similar in material and production requirements. The Salem plant produces a wide variety of appliances with diverse material and production requirements. Which type of costing system would you recommend for each plant (traditional or ABC)? Explain.

Exhibit 5-6

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Traditional Cost System Activity centre Cost driver Activity-Based Cost System Overhead Costs Direct materials. Direct Overhead labour costs costs costs Direct materials costs Direct labour costs Machining activity costs Assembly activity costs Quality inspection activity Direct trace Direct trace DLH Direct Direct trace trace Machine hours (Cost Driver A) Products Products costs Number of parts (Cost Driver 8) Number of inspections (Cost Driver C)