question 3: Activity Based Costing (9 marks] Given increasing competition and pressure on margins in the craft brewing industry, Simona - the financial controller of Federer Inc. - invited in a highly-regarded team of management consultants for advice. At the post-visit meeting, they advised Simona that Federer Inc. should consider adopting an Activity Based Costing (ABC) approach to allocate overhead costs. Federer Inc. currently uses a plant-wide pre-determined overhead rate based on machine hours to allocate overhead costs. Simona has done some preparatory work to explore this adoption decision. She has established the following overhead cost pools and cost drivers for the fiscal year beginning November 1, 2016 and ending October 31, 2017: Budgeted Estimated Activity Overhead Cost Pool Overhead Cost Driver Rates For the Fiscal Year Manufacturing Overheads Machine setups $250,000 Number of setups 125 setups Materials handling $130,000 Number of barrels 6,500 barrels Other production-related manufacturing overheads $400,000 Number of machine 80,000 machine hours hours Non-Manufacturing Overheads Quality control $330,000 Number of inspections 1,100 inspections A customer, Muguruza Ltd., placed an order for 200 barrels of product. The order was completed on October 31, 2017. To fulfil, the order consumed the following levels of activity: Machine setups 1 setup Machine hours 1,400 machine hours Quality inspections 6 inspections To evaluate the potential usefulness of ABC versus traditional (absorption) costing, Simona has asked you to calculate the cost outcome under both approaches and report back to her