Exercise 7.26 Waterway Company produces two products: MB-R and MB-X. Currently, Waterway allocates overhead based on direct labour hours. Overhead is estimated at $320,400 The cost accountant realizes that there are some differences in how resources are being used in producing these two components and is considering the use of ABC to allocate overhead. She determines that overhead is caused by testing and inspections, 593,600; machine setup, 584,000; machine stamping, $102,000; and plant maintenance, $40,800. Waterway estimates the following activities related to the overhead costs: Activity Cost Driver MB-R MB-X Testing and inspections Number of testing and inspections 360 360 Machine setup Number of setups 130 70 Machine stamping Number of machine hours 22,000 12,000 Plant maintenance Direct labour hours 1,200 2,200 Use ABC cost hierarchy to classify each activity Activity Cost Driver Testing and inspections Machine setup Machine stamping Plant maintenance . Compute the amount of overhead assigned to each product using the traditional (e, direct labour hours) costing method. (Round labor rate per hour to 2 decimal places, e.g. 52.75 and the final answers to o decimal places, eg. 5,275.) Overhead assigned MB-R $ MB-X Compute the amount of overhead assigned to each product using ABC. MB-R OH MB-X OH Activity Testing and inspections Machine setup $ Machine stamping Plant maintenance $ Which product is overcosted using the traditional costing method? Overcosted product