Company A manufactures a line of high-end exercise equipment of commercial quality. Assume that the Controller has proposed changing from a traditional costing system to an activity-based costing system. The Vice-President Finance is not convinced, so she requests that the next large order for equipment be costed under both systems to compare and analyze. The company receives an order from Slim Inc, for 150 low impact treadmills, which the Controller identifies as the order to use for dual costing. The following cost data relate to the Slim Inc order:

Data Relevant to Both Costing Systems:

Direct materials $55,500

Direct labour hours 820

Direct labour rate per hour $18

Data Relevant to the Traditional Costing System:

The predetermined overhead rate is 300% of direct labour cost.

Data Relevant to the Activity-Based costing System:

Activity Cost Pools Cost Drivers Activity-Based Expected Use of

Overhead Rate Cost Drivers

Per Treadmill

Engineering design Engineering hours $30 per hour 330

Machine set-up Set-ups $200 per set-up 22

Machining Machine hours $25 per hour 732

Assembly Number of sub- $8 per sub- 1,450

assemblies assembly

Packaging & Packaging & $15 per hour 152

Shipping hours

Building occupancy Machine hours $6 per hour 732

Required:

Calculate the total cost of the Slim Inc order under

The traditional costing system

The activity-based costing system

As a result of this comparison which costing System Company A likely to adopt? And why?