Health 'S 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 'S Us engages in a high level of quality control. Health 'S 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 $72,500. In response to repeated requests from its financial vice president, Health 'S 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 Customer orders Quality-control overhead cost to be assigned Overhead Rate Number of servings $0.33 per serving $12.00 per order $0.90 $ per pound Traditional product costing Number of Cost Drivers Used per Activity 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. $ 5,600 pounds 10,500 servings 430 orders Activity-based costing
Health 'S 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 'S Us engages in a high level of quality control. Health 'S 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 $72,500. In response to repeated requests from its financial vice president, Health 'S 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 Customer orders Quality-control overhead cost to be assigned Overhead Rate Number of servings $0.33 per serving $12.00 per order $0.90 $ per pound Traditional product costing Number of Cost Drivers Used per Activity 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. $ 5,600 pounds 10,500 servings 430 orders Activity-based costing
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Health 'S 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 'S Us engages in a high level of quality control. Health
'S 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 $72,500. In response to repeated
requests from its financial vice president, Health 'S 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
Quality-control overhead cost to be
assigned
Overhead
Rate
$0.90
per
pound
$0.33 per
serving
$12.00 per order
Traditional product
costing
Number of Cost
Drivers
Used per Activity
GA
5,600 pounds
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.
10,500 servings
430 orders
Activity-based costing
Transcribed Image Text:By what amount does the traditional product costing system understate or overstate the low-calorie
breakfast line?
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