Kamloops Cedar Canoes Inc (KCC Inc ) manufacture two models of canoes, the Newport and the Radisson The Newport has been produced for 3 years and sells for $900 while the Radisson is a new model, which has been put into production in 2020 and sells for $1,140 Based on the following income statement for 2020, a decision has been made to phase out the Newport model Kamloops Cedar Canoes Income Statement For the Year Ended December 31, 2020 Radisson Newport Total Sales $4,560,000 $19,800,000 $24,360,000 Cost of goods sold 3,192,000 12,540,000 15,732,000 Gross Margin 1,368,000 7,260,000 8,628,000 Selling and Admin 978,000 5,830,000 6,808,000 Net Income $390,000 $1,430,000 $1,820,000 Units produced and sold 4,000 22,000 Net income per unit sold $97 50 $65 00 The standard unit cost for the Radisson and Newport models are as follows Radisson Newport Direct material $584 $208 Direct labour Radisson (3 5 hrs x $12) 42 Newport (1 5 hrs x $12) 18 Machine usage Radisson (4 hrs x $18) 72 Newport (8 hrs x $18) 144 Manufacturing overhead 100 200 Standard cost 798 570 Manufacturing overhead was applied based on machine hours at a predetermined rate of $25 per hour The companys controller is advocating the use of ABC costing and has gathered the following information about the companys manufacturing overhead costs for 2020 Number of Events Activity Centre (cost driver) Traceable Costs Radisson Newport Total Milling (number of planks milled) $942,000 385,000 1,185,000 1,570,000 Shipments (number of shipments) 860,000 3,800 16,200 20,000 Quality control (number of inspections) 1,240,000 21,300 56,200 77,500 Purchase orders (number of orders) 950,400 109,980 80,100 190,080 Machine power (machine hours) 57,600 16,000 176,000 192,000 Machine setups (number of setups) 750,000 14,000 16,000 30,000 Total traceable costs $4,800,000 Required Briefly explain how an activity based costing system operates Using activity based costing determine if KCC Inc should continue to emphasize the Radisson model and phase out the Newport model Your answer must be supported by calculations

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Kamloops Cedar Canoes Inc. (KCC Inc.) manufacture two models of canoes, the Newport and the Radisson. The Newport has been produced for 3 years and

Kamloops Cedar Canoes Inc. (KCC Inc.) manufacture two models of canoes, the Newport and the Radisson. The Newport has been produced for 3 years and sells for $900 while the Radisson is a new model, which has been put into production in 2020 and sells for $1,140. Based on the following income statement for 2020, a decision has been made to phase out the Newport model.

Kamloops Cedar Canoes Income Statement For the Year Ended December 31, 2020
	Radisson	Newport	Total
Sales	$4,560,000	$19,800,000	$24,360,000
Cost of goods sold	3,192,000	12,540,000	15,732,000
Gross Margin	1,368,000	7,260,000	8,628,000
Selling and Admin.	978,000	5,830,000	6,808,000
Net Income	$390,000	$1,430,000	$1,820,000
Units produced and sold	4,000	22,000
Net income per unit sold	$97.50	$65.00

The standard unit cost for the Radisson and Newport models are as follows:

	Radisson	Newport
Direct material	$584	$208
Direct labour:
Radisson (3.5 hrs. x $12)	42
Newport (1.5 hrs. x $12)		18
Machine usage:
Radisson (4 hrs. x $18)	72
Newport (8 hrs. x $18)		144
Manufacturing overhead*	100	200
Standard cost	798	570

*Manufacturing overhead was applied based on machine hours at a predetermined rate of $25 per hour.

The companys controller is advocating the use of ABC costing and has gathered the following information about the companys manufacturing-overhead costs for 2020.

		Number of Events
Activity Centre (cost driver)	Traceable Costs	Radisson	Newport	Total
Milling (number of planks milled)	$942,000	385,000	1,185,000	1,570,000
Shipments (number of shipments)	860,000	3,800	16,200	20,000
Quality control (number of inspections)	1,240,000	21,300	56,200	77,500
Purchase orders (number of orders)	950,400	109,980	80,100	190,080
Machine power (machine hours)	57,600	16,000	176,000	192,000
Machine setups (number of setups)	750,000	14,000	16,000	30,000
Total traceable costs	$4,800,000

Required:

Briefly explain how an activity based costing system operates.
Using activity based costing; determine if KCC Inc. should continue to emphasize the Radisson model and phase out the Newport model. Your answer must be supported by calculations.