irestone Pottery is a boutique pottery studio located in Wainfleet, Ontario. The studio designs, manufactures and sells unique mugs, bows, plates and ornaments. For the fiscal 2020, it has budgeted overhead costs of $76,800. It has allocated overhead on a factory-wide basis to its two products (coffee mugs and dessert bowls) using direct labor hours which are estimated to be 22,500 for the current year. The company has decided to experiment with activity-based costing and has created two activity cost pools and related activity cost drivers. These two cost pools are: Design (cost driver is number of setups) and Molding (cost driver is machine hours). Overhead allocated to the Design cost pool is $45,500 and $31,300 is allocated to the Molding cost pool. Additional information related to these pools is as follows.

Machine hours

Number of setups

Coffee mugs

765

1,700

Dessert bowls

565

1,250

Total

1,330

2,950

Instructions

(a) Determine the amount of overhead allocated to the coffee mugs product line and the dessert bowls product line using activity-based costing. (5 marks)

(b) What is the difference between the allocation of overhead to the coffee mugs and dessert bowls product lines using activity-based costing versus the traditional approach, assuming direct labor hours were incurred evenly between the coffee mugs and dessert bowls? (6 marks)