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Assume a company produces and sells only two products14,000 units of Product A and 6,000 units of Product B. The selling prices are $65 per unit for Product A and $96 per unit for Product B. Product As direct materials and direct labor costs per unit are $30 and $12, respectively. Product Bs direct materials and direct labor costs per unit are $34 and $15, respectively. The company uses a plantwide overhead rate based on direct labor dollars. It is considering implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead to three cost pools. The following additional information is available for the company as a whole and for Products A and B:

Activity Cost Pool	Activity Measure	Estimated Overhead Cost			Expected Activity
Machining	Machine-hours	$	300,000		15,000	MH
Machine setups	Number of setups	$	150,000		200	Setups
Product design	Number of products	$	80,000		2	Products

Activity Measure	Product A	Product B
Machine-hours	9,000	6,000
Number of setups	50	150
Number of products	1	1

When comparing Product As total overhead costs using the traditional approach with its total overhead costs using the activity-based approach, which of the following statements is true?

Multiple Choice

• The traditional plantwide approach undercosts Product A by between $0 and $49,999 when compared to the activity-based approach.

• The traditional plantwide approach undercosts Product A by between $50,000 and $100,000 when compared to the activity-based approach.

• The traditional plantwide approach overcosts Product A by between $50,000 and $100,000 when compared to the activity-based approach.

• The traditional plantwide approach overcosts Product A by between $0 and $49,999 when compared to the activity-based approach.

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