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Clarendon, Inc. has two production departments, machining and assembly. James Irving, the manager of the...

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Accounting

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Clarendon, Inc. has two production departments, machining and assembly. James Irving, the manager of the assembly department, has noted a concern about the indirect costs allocated to his department, which, based on direct labor hours, seem excessive. He argues that his department is only half the size (in square footage used) of the machining department and uses a small portion of the engineering services and yet he is allocating nearly half of the indirect costs provided by engineering services and occupancy costs. Mr. Irving argues that adopting activity-based costing (ABC), and using multiple cost drivers, would more fairly divide the costs. Assume this data is collected by Mr. Irving: If Clarendon changes to the ABC system recommended, how much would indirect costs change in Mr. Irving's department? $135,000 reduction. $92,000 reduction. $73,000 reduction. $103,000 reduction

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