The Fleming Company of Anguilla (FCA) designs and produces automotive parts. In 2019, actual variable manufacturing overhead is $280,000. FCA's simple costing system allocates variable manufacturing overhead to its three customers based on machine-hours and prices its contracts based on full costs. One of its customers has regularly complained of being charged noncompetitive prices, so FCA's controller Matthias Hodge realizes that it is time to examine the consumption of overhead resources more closely. He knows that there are three main departments that consume overhead resources: design, production, and engineering. Interviews with the department personnel and examination of time records yield the following detailed information:

Department Cost Driver Manufacturing Overhead in 2019 Usage of Cost of Drivers by Customer Contract Gumbs Motors Connor Motors Richardson Auto Design CAD design hours $ 35,000 150 250 100 Production Engineering hours 25,000 130 100 270 Engineering Machine hours 220,000 300 3,700 1,000 Total $280,000

Required

i. Compute the manufacturing overhead allocated to each customer in 2019 using the simple costing system that uses machine-hours as the allocation base.

ii. Compute the manufacturing overhead allocated to each customer in 2019 using department-based manufacturing overhead rates.

iii. Using your results from requirements 1 and 2 above, which customer do you think was complaining about being overcharged in the simple system? Which customer(s) will be unhappy? How would you respond to these concerns if raised by those customers?

iv. How else might FCA use the information available from its department-by-department analysis of manufacturing overhead costs?

v. FCA's managers are wondering if they should further refine the department-by department costing system into an ABC system by identifying different activities within each department.

Discuss the two (2) advantages and two (2) disadvantages of an ABC system, if it is to be implemented in this context?