A company has traditionally allocated its overhead based on machine hours but collected this information to change to activity-based costing:

Estimated Activity

Activity Centre

Product 1

Product 2

Estimated Cost

Machine setups

10

15

$50,000

Assembly parts

1,000

1,500

75,000

Packaging units

500

300

80,000

Machine hours per unit

1

1.5

Production volume

2,000

2,000

Required:

a) How much overhead would be assigned to each unit under the traditional allocation method? (3 marks)

b) How much overhead would be assigned to each unit under activity-based costing? (2.5 marks)

c) Compared to ABC costing, determine each product's amount of under- or overapplied overhead. (2 marks)

d) Is ABC suited to service businesses? Explain with appropriate examples.