Health 'C Us, Inc., uses a traditional product costing system to assign overhead costs uniformly to all its packaged multigrain products. To meet Food and Drug Administration requirements and to assure its customers of safe, sanitary, and nutritious food, Health 'C Us engages in a high level of quality control. Health 'C Us assigns its quality-control overhead costs to all products at a rate of 17% of direct labor costs. Its direct labor cost for the month of June for its low-calorie breakfast line is $66.000. In response to repeated requests from its financial vice president, Health 'C Us's management agrees to adopt activity-based costing. Data relating to the low- calorie breakfast line for the month of June are as follows. Activity Cost Pools Inspections of material received In-process inspections FDA certification (a) Cost Drivers Number of pounds Number of servings Customer orders Overhead Rate Quality-control overhead cost to be assigned $0.90 per pound $0.33 per serving $12.00 per order Number of Cost Drivers Used per Activity 6,000 pounds 9.900 servings 450 orders Compute the quality control overhead cost to be assigned to the low-calorie breakfast product line for the month of June (1) using the traditional product costing system (direct labor cost is the cost driver), and (2) using activity-based costing. Traditional product costing Activity-based costing
Health 'C Us, Inc., uses a traditional product costing system to assign overhead costs uniformly to all its packaged multigrain products. To meet Food and Drug Administration requirements and to assure its customers of safe, sanitary, and nutritious food, Health 'C Us engages in a high level of quality control. Health 'C Us assigns its quality-control overhead costs to all products at a rate of 17% of direct labor costs. Its direct labor cost for the month of June for its low-calorie breakfast line is $66.000. In response to repeated requests from its financial vice president, Health 'C Us's management agrees to adopt activity-based costing. Data relating to the low- calorie breakfast line for the month of June are as follows. Activity Cost Pools Inspections of material received In-process inspections FDA certification (a) Cost Drivers Number of pounds Number of servings Customer orders Overhead Rate Quality-control overhead cost to be assigned $0.90 per pound $0.33 per serving $12.00 per order Number of Cost Drivers Used per Activity 6,000 pounds 9.900 servings 450 orders Compute the quality control overhead cost to be assigned to the low-calorie breakfast product line for the month of June (1) using the traditional product costing system (direct labor cost is the cost driver), and (2) using activity-based costing. Traditional product costing Activity-based costing
Chapter1: Financial Statements And Business Decisions
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Aa-3
Transcribed Image Text:Health 'C Us, Inc., uses a traditional product costing system to assign overhead costs uniformly to all its packaged multigrain products.
To meet Food and Drug Administration requirements and to assure its customers of safe, sanitary, and nutritious food, Health 'C Us
engages in a high level of quality control. Health 'C Us assigns its quality-control overhead costs to all products at a rate of 17% of
direct labor costs. Its direct labor cost for the month of June for its low-calorie breakfast line is $66,000. In response to repeated
requests from its financial vice president, Health 'C Us's management agrees to adopt activity-based costing. Data relating to the low-
calorie breakfast line for the month of June are as follows.
Activity Cost Pools
Inspections of material received
In-process inspections
FDA certification
Cost Drivers
Number of pounds
Number of servings
Customer orders
Overhead
Rate
$0.90 per pound
$0.33 per serving
$12.00 per order
Quality-control overhead cost to be assigned
Number of Cost Drivers
Used per Activity
6,000 pounds
9.900 servings
450 orders
Compute the quality control overhead cost to be assigned to the low-calorie breakfast product line for the month of June (1)
using the traditional product costing system (direct labor cost is the cost driver), and (2) using activity-based costing
Traditional product costing
Activity-based costing
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