Vaughn Toys & Games, Inc. manufactures specialty toys. Vaughn uses a traditional product costing system to assign overhead costs uniformly to all products. To meet industry safety standards and to assure its customers of safe and durable toys, Vaughn assigns its quality-control overhead costs to all products at a rate of 21% of direct labor costs. Its direct labor cost for the month of August for its toddler line of toys is $310.000. In response to repeated requests from its financial vice president, Vaughn's management agrees to adopt activity-based costing. Data relating to the toddler line of toys for the month of August are as follows: Activity Cost Pools Materials Inspection Assembly Line Inspection National Toy Association Certification (a) Traditional costing Activity-based costing Cost Drivers $ Number of pounds Number of finished toys Retail orders Quality-Control Overhead Cost $ Compute the quality-control overhead cost to be assigned to the toddler toy line for the month of August (1) using the traditional product costing system (direct labor is the cost driver), and (2) using activity-based costing. Overhead Rate $0.70 per pound $0.15 per toy $2.00 per order Number of Cost Drivers Used per Activity 56,000 pounds 156,000 toys 600 orders
Vaughn Toys & Games, Inc. manufactures specialty toys. Vaughn uses a traditional product costing system to assign overhead costs uniformly to all products. To meet industry safety standards and to assure its customers of safe and durable toys, Vaughn assigns its quality-control overhead costs to all products at a rate of 21% of direct labor costs. Its direct labor cost for the month of August for its toddler line of toys is $310.000. In response to repeated requests from its financial vice president, Vaughn's management agrees to adopt activity-based costing. Data relating to the toddler line of toys for the month of August are as follows: Activity Cost Pools Materials Inspection Assembly Line Inspection National Toy Association Certification (a) Traditional costing Activity-based costing Cost Drivers $ Number of pounds Number of finished toys Retail orders Quality-Control Overhead Cost $ Compute the quality-control overhead cost to be assigned to the toddler toy line for the month of August (1) using the traditional product costing system (direct labor is the cost driver), and (2) using activity-based costing. Overhead Rate $0.70 per pound $0.15 per toy $2.00 per order Number of Cost Drivers Used per Activity 56,000 pounds 156,000 toys 600 orders
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Vaughn Toys & Games, Inc. manufactures specialty toys. Vaughn uses a traditional product costing system to assign overhead costs
uniformly to all products. To meet industry safety standards and to assure its customers of safe and durable toys, Vaughn assigns its
quality-control overhead costs to all products at a rate of 21% of direct labor costs. Its direct labor cost for the month of August for its
toddler line of toys is $310.000. In response to repeated requests from its financial vice president, Vaughn's management agrees to
adopt activity-based costing. Data relating to the toddler line of toys for the month of August are as follows:
Activity Cost Pools
Materials Inspection
Assembly Line Inspection
National Toy Association Certification
(a)
Traditional costing
Activity-based costing
Cost Drivers
Number of pounds
Number of finished toys
Retail orders
$
Compute the quality-control overhead cost to be assigned to the toddler toy line for the month of August (1) using the traditional
product costing system (direct labor is the cost driver), and (2) using activity-based costing.
Quality-Control Overhead Cost
Overhead
Rate
$0.70 per pound
$0.15 per toy
$2.00 per order
Number of Cost
Drivers Used
per Activity
56,000 pounds
156,000 toys
600 orders
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