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Discuss the traditional overhead allocation system

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Downward Facing Dog produces yoga products. In thepast, 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 asfollows:


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

If one of the company's products requires5,000 machine hours and 200 inspection hours, would the product have been overcosted or undercosted under the traditional overhead allocation system and by how much in total?

Reference no: EM131810105

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