a. Calculate the quality-control overhead cost to be assigned to the low-calorie dessert product line for the month of June using 1. the traditional product costing system (direct labour cost is the cost driver), and 2. activity-based costing. b. By what amount does the traditional product costing system undercost or overcost the low-calorie dessert line relative to costing under ABC? c. Classify each of the activities as value-added or non-value-added.
a. Calculate the quality-control overhead cost to be assigned to the low-calorie dessert product line for the month of June using 1. the traditional product costing system (direct labour cost is the cost driver), and 2. activity-based costing. b. By what amount does the traditional product costing system undercost or overcost the low-calorie dessert line relative to costing under ABC? c. Classify each of the activities as value-added or non-value-added.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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please explain in steps. thanks
Transcribed Image Text:E5.29 (LO 1, 2, 3) Healthy Products Inc. uses a traditional product costing system to
assign overhead costs uniformly to all products. To meet Canadian Food Inspection
Agency (CFIA) requirements and to assure its customers of safe, sanitary, and
nutritious food, Healthy Products engages in a high level of quality control. It assigns
its quality-control overhead costs to all products at a rate of 17% of direct labour costs.
Its direct labour cost for the month of June for its low-calorie dessert line is $65,000.
In response to repeated requests from its vice-president, finance, Healthy Products'
management agrees to adopt activity-based costing. Data relating to the low-calorie
dessert line for the month of June are as follows:
Number of
Cost
Drivers Used
per
Activity Cost Pools
Cost Drivers
Rate
Activity
Inspections of material
Number of
$ 0.80 per
6,000
received
kilograms
kilograms
In-process inspections
Number of
$ 0.33 per
10,000 servings
servings
serving
CFIA certification
Customer orders
$12.00 per order
420 orders
Instructions
a. Calculate the quality-control overhead cost to be assigned to the low-calorie
dessert product line for the month of June using
1. the traditional product costing system (direct labour cost is the cost driver),
and
2. activity-based costing.
b. By what amount does the traditional product costing system undercost or overcost
the low-calorie dessert line relative to costing under ABC?
c. Classify each of the activities as value-added or non-value-added.
kilogram
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