MotoMover makes three models of motorized skateboards. At present, all indirect costs are applied to production using a single predetermined overhead (OH) rate based on direct labour-hours. Management would like you to provide an analysis of the costs of manufacture of the three models that compares the present approach to costing with the ABC approach to costing. Management is not confident that its products are priced appropriately relative to its competitors. The following information has been assembled regarding the activity cost pools and cost drivers.

In addition, management estimates that 40,000 DLHs will be used in the upcoming year, at a rate of $16 per hour. Assume that the following activity took place in the first month of the upcoming year:

Required:

Assume that the data provided is reliable and accurate. Prepare a brief memorandum to management of less than one page in which you compare the costs of each model of skateboard as computed using the two alternative costing approaches. Explain why the costs are the same or not the same and which costing approach you would recommend.

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Annual Expected Estimated Recommended Activity Measure Overhead Volume of Activity Measure Activity Cost $ 160,000 Order processing Number of orders 100 orders Materials handling 122,600 kilograms Materials used 514,920 (kilograms) Machine-hours 16,100 hours Machine depreciation and maintenance 322,000 Quality control Number of inspections 64,000 40 inspections $1,060,920 Economy Deluxe Supreme Number of units produced 22,000 9,000 3,000 Direct materials costs $22,880 $14,600 $8,000 Direct labour-hours 550 1,125 2,000 Number of orders 6. 4 3. Number of production runs 2 2 3 Kilograms of materials used 9,000 3,600 1,500 Machine-hours 1,320 340 200 Number of inspections 3 3 3 Number of units shipped 19,000 8,250 2,250