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16 A company is considering the adoption of an activity-based costing (ABC) system because the managers suspect that their traditional costing system distorts the product costs. This company produces and sells two products Standard and Deluxe. Their traditional costing system uses machine hours (MHS) as the allocation base for manufactu production managers decided that major activities are Assembly, Machine setups, and Parts administration and determined the costs for each activity. They also identified how many MHs, setups, and parts each product requires. Additional information: Standard $120 per unit Deluxe $150 per unit Price Cost Direct materials (DM) Direct labor (DL) Shipping Units produced Activity Assembly (MH) Machine setups (setups) Parts administration (part types) $32 per unit $15 per unit 10% of DM 200.000 units S36 per unit $25 per unit 25% of DM 100,000 units 100,000 MHs 100 setups 200 parts 200,000 MHS 400 setups 200 parts Activities: Assembly (MHS) Machine setups (setups) Parts administration (part types) Customer Relation Cost $1,200,000 $600,000 $300,000 $10,000 Compared with the unit product cost calculated by the ABC system, what is the distortion (difference) created by the traditional costing system for Standard Product? A. Standard Product is overcosted by $ 0.15 B. Standard Product is undercosted by $ 0.15 c. Product A is overcosted by $ 3.05 D. Standard Product is undercosted by $ 3.05 E. None of the above

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