Question

Carlise Corp., which manufactures ceiling fans, currently has two product lines, the Indoor and the Outdoor. Carlise has total overhead of $142,583.

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		$	20,223		630 moves	440 moves
Quality control	Number of inspections		$	85,860		6,400 inspections	4,200 inspections
Machine maintenance	Number of machine hours		$	36,500		26,000 machine hours	24,000 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

Hazelnut Corp. manufactures lawn ornaments. It currently has two product lines, the basic and the luxury. Hazelnut has a total of $140,942 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		$	3,182		20 moves	54 moves
Quality control	Number of inspections		$	32,760		200 inspections	100 inspections
Machine maintenance	Number of machine hours		$	105,000		5,800 machine hours	4,700 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. (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

1.

Predetermined overhead rate = Estimated overhead / Estimated machine hours

Predetermined overhead rate = $142,583 / 50,000 (26,000+24,000) = $2.85166 per machine hour

Overhead assigned:

Indoor line = 26,000*$2.85166 = $74,143

Outdoor line = 24,000*$2.85166 = $68,440

2.

	Indoor	Outdoor
Material handling	0.59 (630/1070)	0.41 (440/1070)
Quality control	0.60 (6400/10600)	0.40 (4200/10600)
Machine maintenance	0.52 (26000/50000)	0.48 (24000/50000)

3.

	Indoor
Material handling	$11,931.57 (20,223*0.59 )
Quality control	51,516 (85,860*0.60)
Machine maintenance	18,980 (36,500*0.52)
Overhead assigned	$82,428

4.

	Outdoor
Material handling	$8,291.43 (20,223*0.41 )
Quality control	34,344 (85,860*0.40)
Machine maintenance	17,520 (36,500*0.48)
Overhead assigned	$60,155

5.

ABC system is more accurate