K2, Inc., is a leading designer, manufacturer, and marketer of brand name sporting goods, other recreational products, and selected industrial products. The sporting goods and recreational products markets are highly competitive, with competition centering on product innovation, performance, and price. In 1999, sporting goods represented 75% of company O sales 1. Go to http://www.k2sports.com to watch the introduction and then click on Go. Pass the cursor over each colored button. What are K2's four major product lines? 2. Click on the K2 Snowboards button and watch the introduction. Review the nature of the products listed and consider the four types of quality costs. Would you expect K2 to spend more on prevention and appraisal costs to reduce external failure costs? Why or why not? 3. Go to http://www.Forbes.com and under "Stocks" type KTO, the stock symbol for K2. Inc., and click on Go. In the left-hand column, click on Financials. Of the first four operat- ing expense accounts listed, which contain manufacturing costs? Which are used for pric- ing and profitability analysis? Which contain indirect costs? 4. Assume "Cost of Products includes indirect costs for materials purchasing, materials handling, indirect assembly labor, and quality inspections for the four major product lines. Identify the primary cost drivers for each of these activities. How would K2 allocate these costs to the four major product lines? 5. Would K2 benefit from using an activity-based costing system? Why or why not? Would ABC likely pass the cost/benefit test for K2? Why or why not?