Review Problem 2 233 Is their service of high quality? The CFO should have a meeting with representatives from the divisions and get their feedback on the quality of the services provided by the internal consultants REVIEW PROBLEM 2 Bender Electric Motors produces electric motors used by home appliance and other manufacturing companies. Each motor is built to customer specifications although the number of units requested may vary from 1 to as many as 2,000. Bender has recently adopted an activity-based costing system with the following overhead costs and drivers. Cost Pool Annual Amount Annual Activity Cost Driver Direct labor related Material ordering Material inspection Equipment setup Quality control Machine related Miscellaneous Total overhead $ 400,000 100,000 600,000 200,000 400,000 800,000 400,000 $2,900,000 $1,000,000 Direct labor cost Purchase orders Receiving reports 5,000 1,000 40,000 Inspections of motors Machine hours Product costs other than miscellaneous overhead Recently the company received an order from Kromer's Department Stores for 10 identical motors for use in a holiday display. Bender estimates the following costs and activities related to the order: Material cost Labor cost Purchase orders Receiving reports Setups Inspections Machine hours $500 $200 2 2 10 Note that the costs indicated are for all 10 motors-they are not per motor. REQUIRED a. Calculate the cost of the Kromer job using the new ABC system. b. Calculate the cost of the Kromer job assuming the company used a traditional costing sys- tem with labor cost as the only allocation base. Briefly explain why costs are higher or lower using the ABC system in part a compared to the traditional system in part b. c