Question

Hazelnut Corp. manufactures lawn ornaments. It currently has two product lines, the basic and the luxury. Hazelnut has a total of $169,007 in overhead.

The company has identified the following information about its overhead activity cost pools and the two product lines:

Activity Cost Pools	Cost Driver	Cost Assigned to Pool				Quantity/Amount Consumed by Basic	Quantity/Amount Consumed by Luxury
Materials handling	Number of moves		$	4,032		25 moves	47 moves
Quality control	Number of inspections		$	33,375		200 inspections	175 inspections
Machine maintenance	Number of machine hours		$	131,600		5,700 machine hours	3,700 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. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount.)



2. Calculate the activity rates for each cost 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?

	Traditional System
	ABC System

Answer 1

1. Computation of Amount of Overhead assigned to each product line
Overhead Recovery Rate =$17.98 $169007/(5700+3700)
Overhead assigned to Basic model ($17.98*5700)			$1,02,030.00
Overhead assigned to Luxury model ($17.98*3700)			$66,526.00

2. computation of Activity Rate
	Cost Pool	No. of Cost Driver	Activity rate
Materials handling	$4,032.00	72	$56.00
Quality control	$33,375.00	375	$89.00
Machine maintenance	$1,31,600.00	9400	$14.00

3 & 4..Overhead Assigned to Basic & Luxury Line
		Basic		Luxury
	Activity Rate	No. of cost driver	OH Cost assigned	No. of cost driver	OH Cost assigned
Materials handling	$56.00	25	$1,400.00	47	$2,632.00
Quality control	$89.00	200	$17,800.00	175	$15,575.00
Machine maintenance	$14.00	5700	$79,800.00	3700	$51,800.00
Total cost assigned			$99,000.00		$70,007.00

5. ABC System is more accurate as compare with Traditional Costing