33. LO.5 (Controlling OH; writing) Starshine Company is in the process of analyzing and updating its cost information and pricing practices. Since the company's product line changed from general paints to specialized marine coatings, there has been tremendous overhead growth, including costs in customer service, production scheduling, inven- tory control, and laboratory work. Factory overhead has doubled following the shift in product mix. Although some large orders are still received, most current business is generated from products designed and produced in small lot sizes to meet specifically detailed environmental and technical requirements. Management believes that large orders are being penalized and small orders are receiving favorable cost (and, thus, selling price) treatment. a. Indicate why the shift in product lines would have caused such major increases in overhead b. Is it possible that management is correct in its belief about the costs of large and small orders? If so, why? c. Write a memo to management suggesting how it might change the cost accounting system to reflect the changes in the business. 34. LO.5 (Benefits of ABC; writing) The cost systems at many companies selling multiple products have become less than adequate in today's global competition. Managers often make important product decisions based on distorted cost information because the cost systems have been primarily designed to focus on inventory measurement. Current litera- ture suggests that many manufacturing companies should have at least three cost systems, one each for inventory measurement, operational control, and activity-based costing. a. Identify the purpose and characteristics of each of the following cost systems: 1. Inventory measurement 2. Activity-based costing b. Discuss why a cost system developed for inventory valuation could distort product cost information. c. Describe the benefits that management can obtain from using activity-based costing. d. List the steps that a company using a traditional cost system would take to imple- ment activity-based costing. CM