Koontz's activity-based approach allocates some of the manufacturing overhead costs (Order processing and Setups) using non-volume-related cost drivers, whereas the plantwide and departmental approaches rely exclusively on volume-related overhead cost allocation. The controller arbitrarily allocated all selling and administrative expenses to products based on their respective sales. The contribution format segmented income statement shown in requirement 4 accurately assigns the variable selling expenses and traceable fixed selling and administrative expenses to each product. It also does not arbitrarily allocate the common fixed selling and administrative expenses to products.INTEGRATION EXERCISE 5 Plantwide and Departmental Overhead Allocation, Segmented Income Statements LO 2-1, LO 2-2, LO 2-3, LO 2-4, LO 4-1, LO 4-2, LO 4-3, LO 4-4 Koontz Company manufactures two models of industrial components-a Basic model and an Advanced Model. The company considers all of its manufacturing overhead costs to be fixed and it uses plantwide manufacturing overhead cost allocation based on direct labor-hours. Koontz's controller prepared the segmented income statement that is shown below for the most recent year (he allocated selling and administrative expenses to products based on sales dollars): Basic Advanced Total Number of units produced and sold. . .. 20,000 10,000 30,000 Sales. ..... $3,000,000 $2,000,000 $5,000,000 Cost of goods sold. . .. 2,300,000 1,350,000 3,650,000 Gross margin. .... 700,000 650,000 1,350,000 elling and administrative expenses . . . 720,000 480,000 1,200,00 t operating income (loss) ....... $ (20,000 170,000 150, 0Direct laborers are paid unit for the Advanced n jepartmental approach. per hour. Direct materials cost $40 per unit for the Betie mewill wind Son Jets I model. Koontz is considering a change from plantwide overhead allocation t . The overhead costs in the company's Molding Department would be allocated deled on machine-homes and the overhead costs in its Assemble and Pack Department would he allows based on direct labor-hours. To enable further analysis, the controller gathered the folkssing information Manufacturing overhead costs ........... Molding Assemble Direct labor-hours: $787.500 and Pack Basic. . . . . . . .. .... Total . . . . Advanced . .. . . . . 10,000 $562,500 $1,350,000 Machine-hours: 5,000 20,000 Basic. . .... . . 10,000 .. . . . .. 30,000 Advanced . . . . . 12,000 15,000 10,000 12,000 10,000 Required: 1. Using the plantwide approach: a. Calculate the plantwide overhead rate. b. Calculate the amount of overhead that would be assigned to each product. 2. Using a departmental approach: Calculate the departmental overhead rates. b. Calculate the total amount of overhead that would be assigned to each product. c. Using your departmental overhead cost allocations, redo the controller's segmented income statement (continue to allocate selling and administrative expenses based on sales dollars). 3. Koontz's production manager has suggested using activity-based costing instead of either the plantwide or departmental approaches. To facilitate the necessary calculations, she assigned the company's total manufacturing overhead cost to four activity cost pools as follows: Manufacturing Activity Cost Pool Activity Measure Overhead Machine-hours in molding $ 417,500 Machining . .. . Assemble and pack . .. ..... . Direct labor-hours in assemble and pack 282,500 Number of customer orders 310,000 Order processing. . . Setup hours 340,000 Setups ..... $1,350,000 She also determined that the average order size for the Basic and Advanced models is 400 units and 50 units, respectively. The molding machines require a setup for each order. One setup hour is required for each customer order of the Basic model and three hours are required to setup for an order of the Advanced model. Using the additional information provided by the production manager, calculate: a. An activity rate for each activity cost pool. b. The total manufacturing overhead cost allocated to the Basic model and the Advanced model using the activity-based approach. 4. The company pays a sales commissions of 5% for the Basic model and 10% for the Advanced model. Its traceable fixed advertising expenses include $150,000 for the Basic model and $200,000 for the Advanced model. The remainder of the company's selling and administrative costs are common fixed Prepare a contribution format segmented income statement that is adapted from Exhibit 7-8. Organize expenses. all of the company's costs into three categories: variable expenses, traceable fixed expenses, and common fixed expenses. Use your activity-based cost assignments from requirement 3 to assign the manufacturing costs included in your traceable fixed expenses.Integration Exercises 5. Using your contribution format segmented income statement from requirement 4, calculate the break- even point in dollar sales for the Advanced model. 6. Explain how Koontz's activity-based costing approach differs from its plantwide and departmental approaches. Also, explain how the controller's allocation of the selling and administrative expenses differs from how you accounted for these expenses within your contribution format segmented income statement