Question

Carlise Corp., which manufactures ceiling fans, currently has two product lines, the Indoor and the Outdoor. Carlise has total overhead of $121,252.

Carlise 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 Indoor Line Quantity/Amount Consumed by Outdoor Line

Materials handling Number of moves $ 18,032 600 moves 320 moves

Quality control Number of inspections $ 74,520 6,200 inspections 4,600 inspections

Machine maintenance Number of machine hours $ 28,700 29,000 machine hours 6,000 machine hours

Required:

1. Suppose Carlise 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 proportions for each cost pool in Carlise's ABC system. (Round your answers to 2 decimal places.)

3. Calculate the amount of overhead that Carlise will assign to the Indoor line if it uses an ABC system. (Round your intermediate calculations to 2 decimal places and round your final answers to the nearest whole dollar amount.)

4. Determine the amount of overhead Carlise will assign to the Outdoor line if it uses an ABC system. (Round your intermediate calculations to 2 decimal places and round your final answers to the nearest whole dollar amount.)

5. Compare the results for a traditional system with an ABC system. Which do you think is more accurate?

Traditional System

ABC System

Answer 1

1)Total Machine hours= 29000 + 6000 = 35000MH

Plantwide overhead rate =Estimated overhead /Estimated machine hours

                = 121252 / 35000

                = $ 3.46434 per MH

	Machine hours used	OVerhead rate per MH	Total overhead assigned
Indoor Line	29000	3.46434	29000*3.46434= 100466
Outdoor line	6000	3.46434	6000*3.46434= 20786
			121252

2)

Activity pool	Total activity	proportion for Indoor line	Proportion for outdoor line
Material handlingQuality control	600+320 = 920 moves	600/920= 65.22%	320/920 = 34.78%
Quality control	6200+4600 =10800 inspections	6200/10800= 57.41%	4600/10800= 42.59%
Machine maintenance	29000+6000 = 35000,MH	29000/35000= 82.86%	6000/35000= 17.14%

3)

Activity pool	Activity cost	Allocation to Indoor line
Material handlingQuality control	18032	18032* 65.22%= 11760.47
Quality control	74520	74520* 57.41%= 42781.93
Machine maintenance	28700	28700* 82.86%= 23780.82
Total overhead allocated	78323.22 (rounded to 78323)

4)

Activity pool	Activity cost	Allocation to Outdoor line
Material handlingQuality control	18032	18032* 34.78% =6271.53
Quality control	74520	74520* 42.59%=31738.07
Machine maintenance	28700	28700* 17.14%=4919.18
Total overhead allocated	42928.78 (rounded to 42929)