Swagg Jewelry Corporation manufactures custom jewelry. In the past, Swagg has been using a traditional overhead allocation system based solely on direct labor hours. Sensing that this system was distorting costs and selling prices, Swagg has decided to switch to an activity based costing system using three activity cost pools. Information on these activity cost pools are as follows:
|
Activity Cost Pool |
Estimated Activity |
Estimated Overhead Cost |
|
Labor related |
8,000 direct labor hours |
$40,000 |
|
Machine related |
12,500 machine hours |
$50,000 |
|
Quality control |
800 number of inspections |
$12,000 |
Job #309 incurred $900 of direct material, 30 hours of direct labor at $40 per hour, 80 machine hours, and 5 inspections.
Required:
a. What is the cost of the job under the activity based costing system?
b. Relative to the activity based costing system, would Job #309 have been overcosted or undercosted under the traditional system and by how much?