The ABC Pool Company manufactures a wide variety of above ground pools. The sales for the ABC Pool Company are typically highest in the spring and summer. The activity-based costing overhead rates for ABC Pool Company are:

Activity Rate

Purchasing $450 per order

Storing $5 per square metre

Machining $30 per machine hour

Supervision $10 per direct labour hour

The sale to customer Soo Pool Installations included five purchase orders, 2,000 square metres, 45 machine hours, and 25 direct labour hours. The cost of direct materials on the job was $35,000 and the direct labour rate is $15 per hour.

Instructions

a. Calculate the total cost of the job to Soo Pool Installation sale using activity based costing.

b. Calculate the total cost of the job to Soo Pool Installation sale using traditional costing, when manufacturing overhead is applied at 250% of direct labour cost.

c. Explain the differences between the two approaches.