Question

Hazelnut Corp. manufactures lawn ornaments. It currently has two product lines, the basic and the luxury. Hazelnut has a total of $141,783 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		$	4,408		23 moves	53 moves
Quality control	Number of inspections		$	28,475		180 inspections	155 inspections
Machine maintenance	Number of machine hours		$	108,900		4,500 machine hours	5,400 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.)

	Basic Model Overhead Assigned Luxury Model Overhead Assigned

2. Calculate the activity rates for each cost pool in Hazelnut’s ABC system.

	Activity Rates Materials Handling per Move Quality Control per Inspection Machine Maintenance per Machine Hour

3. Calculate the amount of overhead that Hazelnut will assign to the basic line if it uses an ABC system.

	Basic Model Materials Handling Quality Control Machine Maintenance Total Overhead Assigned

4. Determine the amount of overhead Hazelnut will assign to the luxury line if it uses an ABC system.

	Luxury Model Materials Handling Quality Control Machine maintenance Total Overhead Assigned

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)	overhead rate = overhead/total machine hours
	= 141783/(4,500+5,400)
	=14.3215

overhead assigned
Basic	14.3215	*	4,500	=	64,447
luxury	14.3215	*	5,400	=	77,336
total overhead					1,41,783

2)	Activity rates		cost	qty	activity rate
	materials handling		4,408	66	66.79	per move
	Quality control		28,475	325	87.62	per inpection
	Machine maintenance		1,08,900	10,600	10.27	per machine hour

3)	Amount of overhead assigned to basic line
	Activity
			a	b	c=a*b
	activity		rate		overhead
	materials handling		66.79	23	1,536
	Quality control		87.62	180	15,772
	Machine maintenance		10.27	4,500	46,215
	total				63,523

4)	overhead assinged to luxury
	Activity
			a	b	c=a*b
	activity		rate		overhead
	materials handling		66.79	53	3,540
	Quality control		87.62	155	13,581
	Machine maintenance		10.27	5,400	55,458
	total				72,579

5)	ABC is better as rates are based on actual activitiesthus assinged overhead is more accurate