a) A company is considering two different projects, Project Alpha and Project Beta, and decides to estimate their overhead costs. (i) Traditionally, the company allocated overhead cost on the basis of machine hours. The total overhead cost last year was $2,000,000 and used 20,000 machine hours. It is estimated that Project Alpha will use 1,500 machine hours and Project Beta will use 500 machine hours. Estimate the overhead of costs of both projects.

(ii) Top management of the company decided to use the Activity-Based Costing (ABC) method, and have collected the information in Table Q1A. In addition, the estimated number of cost driver units for each of the two projects are listed in Table Q1B.

Based on the given information, calculate the total project overhead costs of both projects using the ABC method. What is your observation?

Table Q1A: ABC information Activity (in $) Relevant Cost Driver Purchasing Materials 200,000 Pieces of materials 100,000 Machine Setups 800,000 Number of setups 400 Inspections 400,000 Inspection hours 4,000 Running Machine 600,000 Machine hours 20,000 Table Q1B: Estimated number of cost driver units Activity (in $) Project Alpha Project Beta Purchasing Materials 6,000 pieces 4,000 pieces Machine Setups 10 setups 30 setups Inspections 200 hours 200 hours Running Machine 1,500 hours 500 hours