4-3 Traditional Versus ABC Costing Systems Kim is the controller of Kondo, Inc., an electronic controls company located in Osaka. She recently attended a seminar on activity based costing (ABC) in Tokyo, Kondo's traditional cost accounting system has three cost categories: direct materials, direct labor, and indirect production costs. The company allocates indirect production costs on the basis of direct-labor cost. The following is the 20X1 budget for the automotive controls department in thousands of Japanese yen): Direct materials Direct labor Indirect production costs Total cost 60,000 29.010 21.275 110.285 After Ms. Kim attended the seminar, she suggested that Kondo experiment with an ABC system in the Automotive Controls Department. She identified four main activities that cause indirect production costs in the department and selected a cost driver as a cost allocation base for each activity as follows: Activity Receiving Assembly Quality control Shipping TOTAL Cost Allocation Base Direct-materials cost Number of control units QC hours Number of boxes shipped Predicted 20XO Cost (2000) 6,900 9,950 1,500 3.480 21.10 In 20X1 the Automotive Controls Department expects to produce 99,500 control units, use 560 quality control hours, and ship 8,500 boxes, 1. Explain how Kondo, Inc., allocates its indirect production costs using its traditional cost system. Include a computation of the allocation rate used, 2 Explain how Kondo, Inc., would allocate indirect production costs under Ms. Kim's proposed ABC system. Include a computation of all the allocation rates used 3. Suppose Kondo prices its products at 35% above total production cost. An order came in from Mazda for 9,500 control units. Kim estimates that filling the order will require 44,850,000 of direct-materials cost and 1.900,000 of direct labor. It will require 65 hours of QC inspection time and will be shipped in 675 boxes a. Compute the price charged for the 9.500 control units ir Kondo uses its traditional cost accounting system b. Compute the price charged for the 9,500 control units if Kondo uses the ABC system proposed by Ms. Kim 4 What's the difference in the two costing systems. Include an indication of which costs you think are most accurate and why