Sportsman inc. manufactures ceramic sports-related figurines. The company’s oldest lines are mass produced in a standard variety of colors and designs. A few years ago in an effort to increase sales, the company began accepting special orders with modified designs in school colors. The minimum order for these special designs is 100 units. The special orders have become very popular and now represent one quarter of the units produced.

Sportsman inc. manufactures ceramic sports-related figurines. The company’s oldest lines are mass produced in a standard variety of colors and designs. A few years ago in an effort to increase sales, the company began accepting special orders with modified designs in school colors. The minimum order for these special designs is 100 units. The special orders have become very popular and now represent one quarter of the units produced.

Estimates for the year follow.

Design costs manufacturing overhead and materials handling costs are budgeted at $700.000 for the year Sportsman has always used a traditional cost allocation system using aired labor hours as the allocation base but is considering an activity based costing system. The most likely result of changingto an activity-based system is that
A . the overhead costs allocated to the special designs will likely increase because the special design requires proportionally more overhead activity
B. the overhead costs allocated to the special designs will likely decrease Because demand for them has grown
C. total production costs are likely to decline as department are held responsible for their costs
D. the costs allocated to each product should not change but management will be able to control various components ofthe cost more effectively.

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Answer: A