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): 60,000 29,010 21275 110.285 Direct materials Direct labor Indirect production costs Total cost 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 eackh activity as follows: Cost-Allocation Base Predicted 20x0 Cost (*000) Activity Receiving Assembly Quality control Shipping TOTAL Direct-materials cost Number of control units QC hours Number of boxes shipped 6,900 9,950 1,500 3.480 921830 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 is traditional cost system. Include a computation of allocation rate used. of all the allocation rates used. estimates that filling the order will require Y4,850,000 of direct 2. Explain how Kondo, Inc., would allocate indirect production costs under Ms. Kim's proposed ABC system. Include a computation ts at 35% above total production cost. An order came in from Mazda for 9,500 control units. Kim material cost and 1 900 000 of direct labor. It will require 65 3. Suppose Kondo prices its produc hours of QC inspection time and will be shipped in 675 boxes. a. Compute the price charged for the 9,500 control units if 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. Include an indication of which costs you think are most accurate and why. 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): 60,000 29,010 21275 110.285 Direct materials Direct labor Indirect production costs Total cost 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 eackh activity as follows: Cost-Allocation Base Predicted 20x0 Cost (*000) Activity Receiving Assembly Quality control Shipping TOTAL Direct-materials cost Number of control units QC hours Number of boxes shipped 6,900 9,950 1,500 3.480 921830 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 is traditional cost system. Include a computation of allocation rate used. of all the allocation rates used. estimates that filling the order will require Y4,850,000 of direct 2. Explain how Kondo, Inc., would allocate indirect production costs under Ms. Kim's proposed ABC system. Include a computation ts at 35% above total production cost. An order came in from Mazda for 9,500 control units. Kim material cost and 1 900 000 of direct labor. It will require 65 3. Suppose Kondo prices its produc hours of QC inspection time and will be shipped in 675 boxes. a. Compute the price charged for the 9,500 control units if 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. Include an indication of which costs you think are most accurate and why