Hazelnut Corp. manufactures lawn ornaments. It currently has two product lines,

Question

Hazelnut Corp. manufactures lawn ornaments. It currently has two product lines, the basic and the luxury. Hazelnut has a total of $181,011 in overhead.

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

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?

Hazelnut Corp. manufactures lawn ornaments. It currently has two product lines, the basic and the luxury. Hazelnut has a total of $181,011 in overhead.

Activity Cost Pools Cost Driver Cost Assigned
to Pool Quantity/Amount Consumed by
Basic Quantity/Amount Consumed by
Luxury Materials handling Number of moves $ 3,036 12 moves 54 moves Quality control Number of inspections $ 29,575 230 inspections 95 inspections Machine maintenance Number of machine hours $ 148,400 4,700 machine hours 5,900 machine hours

Explanation / Answer

1) overhead rate = overhead/total machine hours 181,011/(4,700+5,900) 17.07651 overhead assigned Basic 17.07651 * 4,700 = 80260 luxury 17.07651 * 5,900 = 100751 total overhead 181011 2) Activity rates cost qty activity rate materials handling 3,036 66 46 per move Quality control 29,575 325 91 per inpection Machine maintenance 148,400 10600 14 per machine hour 3) Amount of overhead assigned to basic line Activity a b c=a*b activity rate overhead materials handling 46 12 552 Quality control 91 230 20930 Machine maintenance 14 4,700 65800 total 87282 4) overhead assinged to luxury Activity a b c=a*b activity rate overhead materials handling 46 54 2484 Quality control 91 95 8645 Machine maintenance 14 5,900 82600 total 93729 5) ABC is better as rates are based on actual activities thus assinged overhead is more accurate

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