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 20XI budget for the automotive controls department (in thousands of Japanese yen): Direct materials * 60,000 Direct labor 29,010 Indirect production costs 21.275 Total cost L10.285 After Ms. Kim attended the seminar, she suggested that Kondo experiment with an ABC system in the Automotive Controls Department. She identified four main acti vities that cause indirect poduction costs in the depantment and selected a cost driver as a cost-allocation base for each activity as follows: Activity Receiving Cost-Allocation Base Direct-materials cost Predicted 20x0 Cost (VO00) 6,900 Assembly Quality control Shipping Number of control units 9,950 QC hours Number of baxes shipped 1,500 480 TOTAL In 20X1 the Automotive Controla 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 its traditional cost systom, Include a computation of the al location rate used. 2 Explain how Kondo, Inc., would allocate indir ect production costs under Ms. Kim's proposed ABC system. Include a computation of all the allocation rates used. 3. Suppo se Kondo prices its products at 35% above total production cost. An order came in from Mazda for 9,500 control units. Kim estimates that filling the order will require V4,8 50,000 of direct-materials cost and VI1,900,000 of direct labor. It will require 65 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 accoun ting system. b. Compute the price charged for the 9,500 control units if Kondo uses the ABC system proposed by Ma. Kim, 4 What's the difference in the two costing systems. Include an indication of which costs you think are most accurate and why.