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Activity Based Costing versus Traditional Costing Problem. Currently Paradise Industries is considering changing to an Activity Based Costing System due to increased sales, increased number of products, and a more complex manufacturing process with many activities. Paradise Industries has the following overhead costs and cost drivers. \begin{tabular}{|c|c|c|c|} \hline Activity Cost Pools & Cost Driver & Estimated Overhead & Cost Driver Activity. \\ \hline Ordering and Receiving & Orders & $15,000 & 750 orders \\ \hline Machine Setup & Setups & $216,000 & 6000 setups \\ \hline Machining & Machine hours & $2,750,000 & 250,000MH \\ \hline Assembly & Parts & $1,125,000 & 1,500,000 parts \\ \hline Inspection & Inspections & $2,000,000 & 20,000 inspections \\ \hline Traditional Cost Pool & Direct Labor Hours & $6,106,000 & 122,120 DL Hours \\ \hline \multicolumn{4}{|c|}{ 1: Compute the total overhead costs assigned to Product B using activity based costing: } \\ \hline \multirow[t]{2}{*}{ Activity Cost Pool } & Product B Activity & SeeTip1below).ABCOverheadRate(Please & SeeTip2below).ProductBOverhead(Please \\ \hline & (a). & (b)_ & (ab) \\ \hline Ordering and Receiving & 250 Orders & & \\ \hline Machine Setup & 2,000 Setups & & \\ \hline Machining & 85,000 Machine hours & & \\ \hline Assembly & 400,000 Parts & & \\ \hline Inspection & 5,000 Inspections & & \\ \hline \end{tabular} Tip 1: ABC Overhead Rate = Estimated Overhead / Cost Driver Activity Tip 2: Product B Overhead = Product B activity x ABC Overhead Rate 2: Compute the total overhead costs assigned to Product B using traditional costing: \begin{tabular}{|c|c|c|c|} \hline Traditional Costing & Product B Activity & (PleaseSeeTip3below)TraditionalOverheadRate & Tip4below).OverheadCosts \\ \hline & (a). & (b) & (ab) \\ \hline Traditional Cost Pool & 16,620 DL Hours & & \\ \hline \multicolumn{4}{|c|}{ Tip 3: Traditional Overhead Rate = Estimated Overhead / Cost Driver Activity } \\ \hline \multicolumn{4}{|c|}{ Tip 4: Product B Overhead = Product B activity Traditional Overhead Rate } \\ \hline \multirow[t]{3}{*}{ 3: Compute and compare } & ABC Overhead Costs to Tr & Iditional Overhead Costs for & Product B: \\ \hline & Current Traditional OH & Proposed ABC OH & Increase/(Decrease) \\ \hline & (a). & (b)_ & (ba) \\ \hline Product B OH Costs & & & \\ \hline \end{tabular}

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