Question
Waymire Ltd. manufactures two products and currently allocates overhead based on direct labour hours. For the coming year, the company is considering changing to an
Waymire Ltd. manufactures two products and currently allocates overhead based on direct labour hours. For the coming year, the company is considering changing to an activity based costing system by allocating overhead based on 3 activities. The estimated amount of overhead traceable to the 3 activities for the coming year are given below:
Activity | Cost driver | Cost | Product 1 | Product 2 |
Purchase orders | # of orders | $840347 | 312 | 579 |
Maintenance | Machine hours | $456759 | 18555 | 19721 |
Inspection | # of inspections | $718649 | 1526 | 2200 |
Total estimated direct labour hours for the coming year are 33444 hours for Product 1 and 84234 hours for Product 2.
What is the difference between total overhead allocated to Product 2 using activity based costing versus traditional costing? Note: a negative number indicates less total overhead allocated using activity based costing.
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