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Splish Company produces two products: MB-R and MB-X. Currently, Splish allocates overhead based on direct labour hours. Overhead is estimated at $402,800. The cost accountant
Splish Company produces two products: MB-R and MB-X. Currently, Splish allocates overhead based on direct labour hours. Overhead is estimated at $402,800. 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, $134,400; machine setup, $74,000; machine stamping, $144,000; and plant maintenance, $50,400. Splish estimates the following activities related to the overhead costs: Activity Testing and inspections Machine setup Machine stamping Plant maintenance Cost Driver Number of testing and inspections Number of setups Number of machine hours Direct labour hours MB-R 480 140 23,000 1,300 MB-X 480 60 13,000 2,300 Use ABC cost hierarchy to classify each activity. Cost Driver Activity Testing and inspections Machine setup Machine stamping Plant maintenance Compute the amount of overhead assigned to each product using the traditional (i.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, e.g. 5,275.) Overhead assigned MB-R $ MB-X Compute the amount of overhead assigned to each product using ABC. MB-ROH MB-X OH Activity Testing and inspections Machine setup $ Machine stamping $ $ Plant maintenance Which product is overcosted using the traditional costing method? Overcosted product
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