5-24 activity based costing manufacturing Fancy Doors, inc., produces 2 types of doors interior & exterior. The co.'s costing system has 2 direct cost categories (materials & labor) & one indirect cost pool. the simple costing system allocates indirect costs on the basis of machine-hours. Recently, the owners of Fancy Doors have been concerned about a decline in the market share for their interior doors, usually their biggest seller. Information related to Fancy Doors production for the most recent year follows: Units interior exterior unit sold 3200 1800 selling price 250 400 D Mat cost/unit 60 90 D Manf labor-cost /hour 32 32 D Manf labor hour/unit 1.50 2.25 production runs 40 85 material moves 72 168 machine setups 45 155 machine hours 5500 4500 # of inspections 250 150 the owners have heard of other Co. in the industry that are now using an activity-based costing system and are curious how an ABC system would affect their product costing decisions. After analyzing the indirect cost pool for fancy Doors, the owners identify 6 activities as generating indirect costs: production scheduling, material handling, machine setup, assembly, inspection, & marketing. Fancy Doors collected the following data related to the indirect cost activities: activity / active cost/ activ cost driver Product scheduling $190000 prod run material handling $90000 mat. move machine setup $50000 mach. setup assembly $120000 machine hours inspection $16000 # of inspections marking costs were determined to be 3% of the sales revenue for each type of door. 1. Calculate the cost of an interior door and an exterior door under the existing simple costing system. 2. Calculate the cost of an interior door a& an exterior door under an activity-based costing system. 3.Compare the costs of the doors in requirements 1 & 2. Why do the simple & activity-based costing systems differ in the cost of an interior & exterior door? 4. How might Fancy Door, Inc., use the new cost information from its activity-based costing system to address the declining market share for interior doors?