Health 'R 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 'R Us engages in a high level of quality control. Health 'R 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 $ 75,000. In response to repeated requests from its financial vice president, Health 'R 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. Overhead Number of Cost Drivers Activity Cost Pools Cost Drivers Rate Used per Activity Inspections of material received Number of pounds $0.90 per pound 5,900 pounds In-process inspections Number of servings $0.33 per serving 10,400 servings FDA certification Customer orders $12.00 per order 400 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 Quality-control overhead cost to be assigned s eTextbook and Media By what amount does the traditional product costing system undercost or overcost the low-calorie breakfast line? %24 eTextbook and Media Classify cach of the activities as value-added or non-value-added. Activites Inspections of material received In-process inspections FDA certification
Health 'R 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 'R Us engages in a high level of quality control. Health 'R 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 $ 75,000. In response to repeated requests from its financial vice president, Health 'R 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. Overhead Number of Cost Drivers Activity Cost Pools Cost Drivers Rate Used per Activity Inspections of material received Number of pounds $0.90 per pound 5,900 pounds In-process inspections Number of servings $0.33 per serving 10,400 servings FDA certification Customer orders $12.00 per order 400 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 Quality-control overhead cost to be assigned s eTextbook and Media By what amount does the traditional product costing system undercost or overcost the low-calorie breakfast line? %24 eTextbook and Media Classify cach of the activities as value-added or non-value-added. Activites Inspections of material received In-process inspections FDA certification
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Health 'R 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 'R Us engages in a high level of quality control. Health 'R 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 $ 75,000. In response to
repeated requests from its financial vice president, Health 'R 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.
Overhead
Number of Cost Drivers
Activity Cost Pools
Cost Drivers
Rate
Used per Activity
Inspections of material received Number of pounds
$.90 per pound
5,900 pounds
In-process inspections
Number of servings
$0.33 per serving
10,400 servings
FDA certification
Customer orders
$12.00 per order
400 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
Quality-control overhead cost to be assigned
eTextbook and Media
By what amount does the traditional product costing system undercost or overcost the low-calorie breakfast line?
%24
eTextbook and Media
Classify each of the activities as value-added or non-value-added.
Activites
Inspections of material received
In-process inspections
FDA certification
>
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