ACCIDl-Falll Case Study: l-CAN Company-Version DD I-CAN Company makes three products: Jump, Slow, and Speed. The company presently applies overhead using a predetermined rate based on direct-labour hours. The CFO of the company recommended that i-CAN switch to actluiw-based casting {ABC} and Identified the following activities, cast drivers. estimated costs, and estimated cost-driver units for 2023 for each activity center. Table 1: activity Recommended Estimated Estimated Cost- Cost-Driuer Base Costs Driver Units Order processing Number oi orders $500,000 500 orders Production setup Number of production runs 200.000 100 runs Material handling Number of pounds of material 90,000 10,000 pounds Equipment depreciation Number of machine hours 10,000 hours and maintenance 300.000 Quality management Number of inspections 80,000 40 inspections Product Testing Number of tests 50,000 2,000 tests Indirect Labor Number of Hours d0,000 3,000 hours Shipping Number of units shipped 400,000 20,000 units Administrative Expenses Number of units produced 5.9.0.0 10,000 units In addition, management estimated 11,000tiirect-iabour hours [DLHJ for 2023. Assume that the following activities occurred in February of 2023: Table 2: Jump Slow Speed Number of units produced .............. .. 2,200 1000 1,500 Direct material costs ........................ $20,000 $40,000 530,000 Direct~lahour hours ......................... 2000 4000 3000 Number of orders ............... . . ......... 10 10 5 Number of production runs ................... 2' 15 20 Number of pounds of material ........ . ....... 400 300 300 Number of machine hours ................... 000 500 400 Number of inspections ...................... 1 1 1 Product Testing...0...".....s.,................. .............. ..... 1000 500 300 Indirect tabor (Secretary, Driver, etc...1................ 700 800 1000 Number of units shipped ..... . . . ............ 1,000 and 300 Direct-labour costs were $10 per hour. V DD Required (total 170 points) A. (1) Compute a predetermined overhead rate for 2023 for each cost driver recommended by the CFO. (2) Also compute a predetermined overhead rate using direct-labour hours as the allocation base. (11 points) B. Compute the production costs for each product for February using direct-labour hours as the allocation base and the predetermined rate computed in requirement (a.2). (15 points) C. Compute the production costs for each product for February using the cost drivers recommended by the CFO and the predetermined rates computed in requirement (a.1). (Note: Do not assume that total overhead applied to products in February will be the same for activity-based costing as it was for the labour-hour-based allocation.) (15 points) D. Management has seen your numbers and wants to know how you account for the discrepancy between the product costs using direct-labour hours as the allocation base and the product costs using activity-based costing. Write a brief response to management. (4 points) E. The company marks its products by 20%, Calculate the price for each product using both methods, traditional and ABC. Comment on the difference in prices. (3 points) F. Calculate the Net Operating Income (NOI) for each product under both traditional and ABC allocation methods. You must present NOI using the contribution margin income statement (18 points) and Traditional Income Statement Formats (18 points). G. Do both statements produce the same NOI for each product? What is the focus of each income statement? Which one would be recommended for Internal decision making? Are they both allowed under Generally Accepted Accounting Principle? (4 points) H. For 2024, I-CAN is planning to ship 1,500 units of Jump, 800 units of Slow, and 500 units of Speed. The company expects an increase in product selling prices by 15% in response to an increase in costs by 10% in 2024. Based on this information, reproduce "Required A, B and C" assuming an estimated 12,500 DLH in 2024. (9 points, 15 points, 15 points, respectively). 1 For 2024, calculate the Budgeted Net Operating Income using the contribution margin and traditional income statement formats for each product and under both (traditional (18 points) and CM (18 points) methods as in F. J . Based on your answers in G, which product is more profitable? Why? And, is it a good strategy to increase the selling price in 2024? (7 points) The End