Answer:
d. Product A is under-costed and Product B is over-costed.
Explanation:
<u><em>Alex, Inc.</em></u>
<u><em>Given Data</em></u>
Activity Activity Rate Actual Activity Usage
Product A Product B
Design $600/design hour 200 300
Machining $1.25/machine hour 100,000 300,000
Inspection $500/batch 100 300
<u><em>Calculated </em></u>
<u><em>Activity Based Overheads</em></u>
Activity Activity Rate Actual Activity Cost
Product A Product B
Design $600/design hour 120,000 180,000
Machining $1.25/machine hour 125,000 375,000
<u>Inspection $500/batch 50,000 150,000</u>
<u> Total 295,000 705,000 </u><u> </u>
<u />
Now Plant-wide Overhead Calculations
Product A = $2.50* 100,000 = $ 250,000
Product B = $2.50* 300,000 = $ 750,000
Comparing Both results Product A Product B
Plant wide OH $ 250,000 $ 750,000
ABC OH <u>295,000 705,000 </u><u> </u>
<u>Observation underscosted overcosted</u>