Katelynn Corporation manufactures two products: kites and gl…
Katelynn Corporation manufactures two products: kites and gliders. Annual production: Kites: 2,000 units and 2,000 direct labor hours Gliders: 400 units and 2,000 direct labor hours Total estimatedoverhead: $ 154,000 The company is considering switching to an ABC system for its products. If the company used an ABC system, it would have the following three activity cost pools: The company currently calculates the predetermined overhead rate as follows: = Total estimated overhead ÷ Total estimated direct labor hours = $ 154,000 ÷ 4,000 direct labor hours = $ 38.50 overhead per direct labor hour Requirements: Calculate the total overhead cost for gliders using Katelynn Corporation’s existing (traditional) costing system. Calculate the overhead cost for gliders under the proposed ABC system: Calculate the activity-based overhead rate for each activity cost pool, then Calculate the total overhead costs for the gliders under the proposed ABC system. What information do these results provide tomanagement? Based upon these results, what advice would you provide management? Be specific. For example: Is the information provided to management more detailed? If so, how? When comparing the traditional and ABC systems’ total overhead computations, are the gliders over- or under-costed? What recommendations would you make to management?