Yonex Company produces two products: MB-R and MB-X. Currently, Yonex allocates overhead based on direct labour hours. Overhead is estimated at $400,000. The cost accountant realizes that there are some differences in how resources are being used in producing these two components and is considering the use of ABC to allocate overhead. She determines that overhead is caused by testing and inspections, $120,000; machine setup, $80,000; machine stamping, $160,000; and plant maintenance, $40,000. Yonex estimates the following activity related to the overhead costs:

REQUIRED
A. Use ABC cost hierarchy to classify each activity.
B. Compute the amount of overhead assigned to each product using the traditional (i.e., direct labour hours) costing method.
C. Compute the amount of overhead assigned to each product using ABC.
D. Which product is overcosted using the traditional costing method? What insights do ABC costing provide?

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Activity Cost Driver MB-R MB-X Testing and inspections Number of testing and inspections40400 120 Machine setup Machine stamping Plant maintenance Number of setups Number of machine hours Direct labour hours 80 25,000 15,000 1,500 2,500