The controller for Company is trying to decide whether the company should switch from the traditional approach of overhead cost allocation to the activity-based costing approach. She has gathered the following overhead data on the company’s two products: estimated total overhead, $180,000 (consisting of the $70,000 for setups and $110,000 for assembly); estimated direct labor hours (Product A, 6,000; Product B, 3,000); estimated number of setups (Product A, 750; Product B, 1,250); estimated number of machine hours used in assembly (Product A, 3,000; Product B, 5,000); estimated number of units produced (Product A, 500; Product B, 200).
1. Using the traditional approach:
a. Calculate the predetermined overhead rate using direct labor hours as the cost driver
b. Computer the amount of overhead costs applied to each product in total and per unit
2. Using the activity-based approach:
a. Calculated the overhead cost pool rates for each pool
b. Compute the amount of overhead costs applied to each product by cost pool, in total, and per unit
3. Discuss the differences in the overhead costs allocated to two product lines

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