LO17-6, L017-7 Downhill Fast manufactures three ski products: boots, poles, and helmets. The company allocates PROBLEM 17.78 manufacturing costs to each product line based on machine-hours. A large portion of its manufac- ABC versus Use of a single turing overhead cost is incurred by the Maintenance Department. This year, the department antici- Activity Base pates that it will incur $250,000 in total costs. The following estimates pertain to the upcoming year Estimated Estimated Units Product Machine-Hours of Production Boots 5,000 50,000 Poles 10,000 200,000 Helmets 35.000 20,000 Carol Safooma, the company's cost accountant, suspects that unit costs are being distorted by using a single activity base to allocate Maintenance Department costs to products. She is consider- ing the implementation of an activity-based costing system (ABC). Under the proposed ABC system, the maintenance costs would be allocated to the following activity cost pools using the number of work orders as an activity base: (1) the equipment set-up pool, and (2) the custodial pool. Or the 2.400 work orders filed with the Maintenance Department each year, approximately 600 relate to equipment set-up activities, whereas 1,800 relate to custo dial functions. Equipment set-ups correlate with the number of production runs associated with each product line. Thus, the equipment set-up pool would be allocated based on the number of production runs required for each product. Custodial services correlate with square feet of production space and would be allocated based on the space required to produce cach product line. The following table provides a summary of annual production activity and square footage requirements: 800 Chapter 17 Job Order Cost Systems and Overhoed Allocations Product Boots Poles Helmets Estimated Estimated Square Production Runs Feet of Production Space 500 9,000 300 15,000 200 0.000 Instructions 1. Calculate the amount of Maintenance Department costs that would be allocated to each prod- uct line (on a per-unit basis) using machine-hours as a single activity base. b. Calculate the amount of Maintenance Department costs that would be allocated to each prod- uct line (on a per-unit basis) using the proposed ABC system. c. Are cost allocations currently being distorted using machine-bours as a single activity base? Defend your answer. a