The Golden State company produces two models of smartwatches, MyWatch XS and MyWatchXL. The company has been manufacturing the XL model for years. The XS model was recently introduced to cater to a new market segment. For reasons that the company was not able to understand, the companys profits have steadily declined since the introduction of the XS model, even though sales of the XS model were increasing rapidly. The company suspects that its costing system could be the source of the problem.

The system currently allocates manufacturing overhead costs to the two products using labor hours. For 2019, the company estimated that its manufacturing overhead costs would be $1 million. It expects to produce and sell 5000 units of XS and 40,000 units of XL. The XS model requires two hours of direct labor per unit while the XL requires one hour per unit. Thus, it is expected that 50,000 direct labor hours would be required in total. The XS model sells for $140 per unit. It uses $45 worth of Direct materials per unit and its direct labor cost is $ 20 per unit. The XL model sells for $80 per unit. It uses $30 worth of Direct materials per unit and its direct labor cost is $ 10 per unit.

Concerned with the decline in profitability and suspecting its costing system, Golden State company after a review of its manufacturing activities decides to allocate manufacturing overhead costs based on four activities. The company believes that this would result in more accurate costing. The manufacturing overhead costs traceable to these four activities for 2019 are as below:

			Cost Driver Consumption
Activity	Cost Driver	Cost	XS model	XL model	Total
Purchase Orders Quality Control Production Setups Machine Maintenance	# of orders # of Inspections # of Setups Machine Hours	$180,000 250,000 220,000 350,000	200 1,000 100 20,000	400 1,000 100 15,000	600 2,000 200 35,000
		1,000,000 (total cost)

What insights can you draw from the activity analyses regarding resource consumption by the two models? Were any of the models under or over-costed using the traditional costing approach that the firm previously followed? If yes, why?