Review the Marine, Inc. example in the part 3 lecture (Problem 4-15). In your opinion, what is causing total overhead for the flexible model to be so much higher than for the rigid model? If this was your company, what would you do to address it an hopefully increase profits? 35 Problem 4-15 - Contrast ABC and Conventional Costing Marine, Inc., manufactures a product that is available in both a flexible and a rigid model. The company has made the rigid model for years, the flexible model was introduced several years ago to tap a new segment of the market. Since introduction of the flexible model, the company's profits have steadily declined, and management has become Page 177 concerned about the accuracy of its costing system. Sales of the flexible model have been increasing rapidly. Overhead is applied to products on the basis of direct labor-hours. At the beginning of the current year, management estimated that $600,000 in overhead costs would be incurred and the company would produce and sell 1,000 units of the flexible model and 10,000 units of the regular model. The flexible model requires 2.0 hours of direct labor time per unit, and the regular model requires 1.0 hours. Direct materials and labor costs per unit are given below: Flexible Rigid Direct materials cost per unit $110.00 $80,00 Direct labor cost per unit $30.00 $15.00 Calculate the product cost for each product using traditional costing. -- Problem 4-15 - Contrast ABC and Conventional Costing 2. An intern suggested that the company use activity-based costing to cost its products. A team was formed to investigate this idea. It came back with the recommendation that four activity cost pools be used. These cost pools and their associated activities are listed as follows: Expected Activity Activity Cost Pool and Activity Measure Estimated Overhead Cost Flexible Rigid Total Purchase orders (number of orders) $ 20,000 100 400 Rework requests (number of requests) 10,000 60 200 Product testing (number of tests) 210,000 900 1,200 2,100 Machine-related (machine-hours) 360,000 1,500 2,500 4,000 $600,000 300 140 Calculate the product cost for each product using traditional costing