Activity Based Costing versus Traditional Costing Problem. Currently Paradise Industries is considering changing to an Activity Based Costing System due to increased sales, increased number of products, and a more complex manufacturing process with many activities. Paradise Industries has the following overhead costs and cost drivers. Activity Cost Pools Ordering and Receiving Machine Setup Machining Assembly Inspection Cost Driver Orders Setups Machine hours Parts Inspections Estimated Overhead $15,000 $216,000 $2,750,000 $1,125,000 $2,000,000 Cost Driver Activity 750 orders 6000 setups 250,000 MH 1,500,000 parts 20,000 inspections 122,120 DL Hours Traditional Cost Pool Direct Labor Hours $6,106,000 1: Compute the total overhead costs assigned to Product B using activity based costing: ABC Overhead Rate Total Product B Overhead Activity Cost Pool Product B Activity (Please See Tip 1 below) (Please See Tip 2 below) (a) (b) (axb) Ordering and Receiving 250 Orders $20 $5,000 Machine Setup 2,000 Setups $36 $72,000 Machining 85,000 Machine hours $11 $935,000 Assembly 400,000 Parts $0.75 $300,000 Inspection 5,000 Inspections $100 $500,000 Using ABC costing, Total Overhead Costs assigned to Product B $1,812,000 2: Compute the total overhead costs assigned to Product B using traditional costing: Traditional Overhead Total Overhead Costs Traditional Costing Product B Activity Rate (Please See Tip 3 (Please See Tip 4 below) below) (a) (b) (axb) Traditional Cost Pool 16,620 DL Hours $831,000 $50 Tip 3: Traditional Overhead Rate = Estimated Overhead / Cost Driver Activity Tip 4: Total Product B Overhead = Product B activity x Traditional Overhead Rate 3: Compute and compare ABC Overhead Costs to Traditional Overhead Costs for Product B: Current Traditional OH Proposed ABC OH Increase/Decrease) (a) (b-a) (b) Product B OH Costs 2. Instructions for Posting (200 to 300 words - 60pts): a. Based on the results for Product B Overhead for Traditional Costing and the proposed ABC Costing: 1-Would you recommend to change from Traditional Costing to ABC Costing for computing overhead? 2-Provide three reasons (explain advantages or disadvantages) for your decision. b. Explain Activity Based Costing and describe three activities for ABC costing. Include two limitations in using ABC Costing in comparison to Traditional Costing. c. Explain and compare Product Level Activities to Facility Level Activities. Provide two examples for Product Level Activities and two examples for Facility Level Activities