Surdy Doors, Inc., produces two types of doors, interior and exterior. The company's simple costing system has two direct cost categories (materials and labor) and one indirect cost pool. The simple costing system allocates indirect costs on the basis of machine-hours. Recently, the owners of Surdy Doors have been concerned about a decline in the market share for their interior doors, usually their biggest seller. Information related to Surdy Doors production for the most recent year follows:

	Interior		Exterior
Units sold	3,100		1,700
Selling price	$130		$220
Direct material cost per unit	$60		$85
Direct manufacturing labor cost per hour	$17		$17
Direct manufacturing labor-hours per unit	1.5		2.3
Production runs	45		95
Material moves	75		165
Machine setups	45		140
Machine-hours	5,500		4,500
Number of inspections	210		130

The owners have heard of other companies in the industry that are now using anactivity-based costing system and are curious how an ABC system would affect their product costing decisions. After analyzing the indirect cost pool for surdy Doors, the owners identify six activities as generating indirect costs: production scheduling, material handling, machinesetup, assembly, inspection, and marketing.

Surdy Doors collected the following data related to the indirect cost activities:

Activity	Activity Cost		Activity Cost Driver
Production scheduling	$102,200		Production runs
Material handling	$44,400		Material moves
Machine setup	$24,050		Machine setups
Assembly	$90,000		Machine-hours
Inspection	$11,900		Number of inspections

Marketing costs were determined to be 3% of the sales revenue for each type of door.

1. Calculate the cost of an interior door and an exterior door under the existing simple costing system.

2. Calculate the cost of an interior door and an exterior door under an activity-based costing system.

3. Compare the costs of the doors in requirements 1 and 2. Why do the simple and activity-based costing systems differ in the cost of an interior and exterior door?

4. How might Surdy Doors, Inc., use the new cost information from its activity-based costing system to address the declining market share for interior doors?