Hazelnut Corporation manufactures lawn ornaments. It currently has two product lines, the basic and the luxury. Hazelnut has a total of $144,410 in overhead.

The company has identified the following information about its overhead activity pools and the two product lines:
Activity Pools Cost Driver Cost Assigned to Pool Quantity or Amount Consumed by Basic Quantity or Amount Consumed by Luxury
Materials handling Number of moves $ 3,400 18 moves 50 moves
Quality control Number of inspections $ 34,310 220 inspections 110 inspections
Machine maintenance Number of machine hours $ 106,700 5,500 machine hours 4,200 machine hours
Required:

Suppose Hazelnut used a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line.
Calculate the activity rates for each activity pool in Hazelnut’s ABC system.
Calculate the amount of overhead that Hazelnut will assign to the basic line if it uses an ABC system.
Determine the amount of overhead Hazelnut will assign to the luxury line if it uses an ABC system.
Compare the results for a traditional system with that of an ABC system. Which do you think is more accurate?

Question

06-06-2024
Business

Answered

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Hazelnut Corporation manufactures lawn ornaments. It currently has two product lines, the basic and the luxury. Hazelnut has a total of $144,410 in overhead.

The company has identified the following information about its overhead activity pools and the two product lines:
Activity Pools Cost Driver Cost Assigned to Pool Quantity or Amount Consumed by Basic Quantity or Amount Consumed by Luxury
Materials handling Number of moves $ 3,400 18 moves 50 moves
Quality control Number of inspections $ 34,310 220 inspections 110 inspections
Machine maintenance Number of machine hours $ 106,700 5,500 machine hours 4,200 machine hours
Required:

Suppose Hazelnut used a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line.
Calculate the activity rates for each activity pool in Hazelnut’s ABC system.
Calculate the amount of overhead that Hazelnut will assign to the basic line if it uses an ABC system.
Determine the amount of overhead Hazelnut will assign to the luxury line if it uses an ABC system.
Compare the results for a traditional system with that of an ABC system. Which do you think is more accurate?

Sagot :

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