Downward Facing Dog produces yoga products. In the past, a traditional overhead application system based on machine hours has been used. Downward is considering switching to Activity Based Costing in an effort to remain competitive in the market. Two activities and cost drivers related to manufacturing overhead costs have been identified. Budgeted information is as follows: 

If one of the company's products requires 5,000 machine hours and 200 inspection hours, would the product have been over costed or under costed under the traditional overhead allocation system and by how much in total?  

A. undercosted by $21,000

B. undercosted by $12,600

C. overcosted by $12,600

D. overcosted by $21,000

E. overcosted by $17,400

Transcribed Image Text:

Budgeted Manufacturing Overhead $500,000 $210,000 Budgeted Cost Driver Activity Level 50,000 machine hours General Factory Overhead Costs Inspection Overhead Costs 5,000 inspection hours Budgeted Manufacturing Overhead $500,000 $210,000 Budgeted Cost Driver Activity Level 50,000 machine hours General Factory Overhead Costs Inspection Overhead Costs 5,000 inspection hours

Answer rating: 100% (QA)

Oh allocated under Traditional Costing Total Budgeted Overheads 500000 210000 710000 Divide Budg... View the full answer