PA41 Assigning Costs Using Traditional System ABC System LO

PA4-1 Assigning Costs Using Traditional System, ABC System [LO 4-1, 4-3, 4-4, 4-6]

Hazelnut Corp. manufactures lawn ornaments. It currently has two product lines, the basic and the luxury. Hazelnut has a total of $160,188 in overhead.

The company has identified the following information about its overhead activity cost pools and the two product lines:

Required:
1. Suppose Hazelnut used a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount.)

2. Calculate the activity rates for each cost pool in Hazelnut’s ABC system.

3. Calculate the amount of overhead that Hazelnut will assign to the basic line if it uses an ABC system.



4. Determine the amount of overhead Hazelnut will assign to the luxury line if it uses an ABC system.

Activity Cost Pools	Cost Driver	Cost Assigned to Pool	Quantity/Amount Consumed by Basic	Quantity/Amount Consumed by Luxury
Materials handling	Number of moves		$	4,108		18 moves	61 moves
Quality control	Number of inspections		$	31,280		240 inspections	100 inspections
Machine maintenance	Number of machine hours		$	124,800		5,400 machine hours	4,200 machine hours

Solution

Req 1. Estimated overheads 160188 Divide: Total machine hours 9600 OH rate per MH 16.68625 OH assigned: Basic (5400 MH @ 16.68625) 90105.75 Luxury (4200 Mh @ 16.68625) 70082.25 req 2: STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL Activity Total Expected Activity ACTIVITY COST POOL Measures Overheads Activity Rate Material Handling Moves 4,108 79 52.00 Quality Control Inspetions 31,280 340 92.00 Machine Maintenance MH 124,800 9,600 13.00 Req 3 and 4: Activity Rate Basic Luxury Activity Oh Activity Oh Material Handling 52 18 936 61 3172 Quality Control 92 240 22080 100 9200 Machine Maintenance 13 5400 70200 4200 54600 Total OH 93216 66972 OH allocated to basic: $ 93216 Oh allocated to Luxury: $ 66972