Question

Hazelnut Corp. manufactures lawn ornaments. It currently has two product lines, the basic and the luxury. Hazelnut has a total of $151,630 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		$	4,000		10 moves	70 moves
Quality control	Number of inspections		$	26,730		220 inspections	110 inspections
Machine maintenance	Number of machine hours		$	120,900		5,100 machine hours	4,200 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. (Round your answers to the nearest whole dollar.)

3. Calculate the amount of overhead that Hazelnut will assign to the basic line if it uses an ABC system. (Round your intermediate and final answers to the nearest whole dollar.)

4. Determine the amount of overhead Hazelnut will assign to the luxury line if it uses an ABC system. (Round your intermediate and final answers to the nearest whole dollar.)

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

		Hazelunet Corporation
	Total Overhead=(A)	$                   1,51,630.00
	Total Machine Hours(5100+4200)=(B)	9300
	Predermined Overhead Rate=(A)/(B)	$                      16.304301
		Basic Model	Luxury Model
1)	Machine Hours=(A)	5100	4200
	PRedermined Overhead Rate=(B)	$                        16.30430	$        16.30430
	Overhead Assigned=(A)*(B)	$                             83,152	$             68,478
		(A)	(B)		(A)/(B)
2)	Activity Cost Pool	Cost Assigned to Pool	Total Quantity/Amount consumed by Basic and Luxury		Activity Rate
	Material Handling	4000	80	moves	50	Per move
	Quality Control	26730	330	Inspection	81	Per Inspection
	Machine Handling	120900	9300	Machine Hours	13	Per Machine Hours
3)	Amount of Overhead assigned to Basic Line
		(A)		(B)		(A)*(B)
	Activity Cost Pool	Total Quantity/Amount consumed by Basic and Luxury		Activity Rate		Overhead Assigned
	Material Handling	10	moves	50	per move	$       500.00
	Quality Control	220	inspection	81	per inspection	$ 17,820.00
	Machine Handling	5100	Machine Hours	13	per machine hours	$ 66,300.00
4)	Amount of Overhead assigned to Luxury Line
		(A)		(B)		(A)*(B)
	Activity Cost Pool	Total Quantity/Amount consumed by Basic and Luxury		Activity Rate		Overhead Assigned
	Material Handling	70	moves	50	per move	$   3,500.00
	Quality Control	110	inspection	81	per inspection	$   8,910.00
	Machine Handling	4200	Machine Hours	13	per machine hours	$ 54,600.00
5)	Under activity based costing cost allocation to the prodcut on the basis of actual consmption of resources,but under tradtional costing system
	overhead cost allocated to Basic model is too high as compaired to Luxury model,so ABC costing system give accurate results.