Your consulting firm has been hired by Before the Amplifier, a manufacturer of two lines of guitars, acoustic and electric, to determine if the price of its electric guitar line is too high in comparison to its competitors. After meeting with management, you have decided to look into how manufacturing overhead is being allocated to production since product costs are marked up to set the company's sales prices. The company is currently applying 100% of its MOH, estimated at $4,000 for the next period, to production based on machine hours. However, when meeting with the production manager, they identify four different activities, one of which is machine setup, that contribute to the total overhead. The machine setup activity accounts for 60% of the total expected manufacturing overhead for the upcoming period and is driven by the number of times the machines are set up. The production manager provided the following input ratios for each product line: acoustic electric expected machine hours per guitar expected number of guitars per set up 0.75 machine hours per guitar 0.6 machine hours per guitar 5 guitars per set up 25 guitars per set up You have asked one of your staff members to determine if cost distortion exists with respect to machine setup given 20 Acoustic guitars and 100 Electric guitars are expected to be produced in the next period. They provided the following analysis: A total of 8 setups are expected next period. 4 of which are attributable to the acoustic line and 4 of which are attributable to the electric line. As such, under ABC, $2,000 of the total $4,000 expected MOH should be allocated to the acoustic line, and the remaining $2,000 should be allocated to the electric line. Since the current costing system is allocating MOH based on machine hours, cost distoration does excist because the current system is only allocating $800 of the $4,000 to the acoustic line and the remaining $3,200 to the electric line. In other words, the current costing system is undercosting the acoustic line by $1,200 and overcosting the electric line by $1,200. Overcosting the electric line would result in overpricing. What is the issue with the staff member's analysis? O O O O O A. They used the wrong cost driver for the traditional costing system. B. They assumed that if one product is overcosted, then the other product is undercosted by the same amount in total. C. They used consumption ratios rather than POHRS in their calculations. D. They assumed all of the manufacturing overhead was attributable to the machine setup activity. E. They assumed that overcosting results in overpricing. Time Remaining: 01:37:46 Next