Hazelnut Corporation manufactures lawn ornaments. It currently has two product lines, the basic and the luxury. Hazelnut has a total of $171,500 in overhead. The company has identified the following information about its overhead activity pools and the two product lines: Activity Pools Materials handling Quality control Machine maintenance Cost Driver Number of moves Number of inspections Number of machine hours Cost Assigned to Quantity or Amount Consumed Quantity or Amount Consumed Pool by Basic by Luxury 20 moves 50 moves 125 inspections 5,000 machine hours $ 14,000 $ 37,500 $ 120,000 250 inspections 5,000 machine hours 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. 2. Calculate the activity rates for each activity 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. 5. Compare the results for a traditional system with that of an ABC system. Which do you think is more accurate?
Hazelnut Corporation manufactures lawn ornaments. It currently has two product lines, the basic and the luxury. Hazelnut has a total of $171,500 in overhead. The company has identified the following information about its overhead activity pools and the two product lines: Activity Pools Materials handling Quality control Machine maintenance Cost Driver Number of moves Number of inspections Number of machine hours Cost Assigned to Quantity or Amount Consumed Quantity or Amount Consumed Pool by Basic by Luxury 20 moves 50 moves 125 inspections 5,000 machine hours $ 14,000 $ 37,500 $ 120,000 250 inspections 5,000 machine hours 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. 2. Calculate the activity rates for each activity 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. 5. Compare the results for a traditional system with that of an ABC system. Which do you think is more accurate?
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter4: Activity-based Costing
Section: Chapter Questions
Problem 36P: Reducir, Inc., produces two different types of hydraulic cylinders. Reducir produces a major...
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Transcribed Image Text:Hazelnut Corporation manufactures lawn ornaments. It currently has two product lines, the basic and the luxury. Hazelnut has a total of
$171,500 in overhead.
The company has identified the following information about its overhead activity pools and the two product lines:
Activity Pools
Materials handling
Quality control
Machine maintenance
Cost Driver
Number of moves
Number of inspections
Number of machine hours
Cost Assigned to Quantity or Amount Consumed Quantity or Amount Consumed
Pool
by Basic
by Luxury
50 moves
20 moves
250 inspections
5,000 machine hours
$ 14,000
$ 37,500
$ 120,000
125 inspections
5,000 machine hours
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.
2. Calculate the activity rates for each activity 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.
5. Compare the results for a traditional system with that of an ABC system. Which do you think is more accurate?
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Step 1: Activity Based Costing
VIEWStep 2: 1. Working for overhead assigned to product using traditional costing method
VIEWStep 3: 2. Working for Overhead costs assigned using activity based costing
VIEWStep 4: 3 & 4 .Working for Overhead costs assigned using activity based costing
VIEWStep 5: 5. Comparision between traditional costing and ABC
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