Question

Hazelnut Corp. manufactures lawn ornaments. It currently has two product lines, the basic and the luxury. Hazelnut has a total of $176,240 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		$	3,120		21 moves	44 moves
Quality control	Number of inspections		$	27,520		220 inspections	110 inspections
Machine maintenance	Number of machine hours		$	145,600		5,400 machine hours	5,000 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. (Round your answers to the nearest whole dollar.)

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. (Round your intermediate and final answers to the nearest whole dollar.)

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. (Round your intermediate and final answers to the nearest whole dollar.)

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)	Total OH cost			$ 176,240.00
	Total Machine Hours		(5400 + 5000)	10400
	OH rate per hour			$           16.95
	OH assigned to:
	Basic Model		($ 16.95 x 5400)	$         91,509
	Luxury Model		($ 16.95 x 5000)	$         84,731

			Cost	Total Volume		Rate (Cost per volume)
2)	Material Handling		$     3,120.00	65	(21 + 44)	$         48
	Quality Control		$   27,520.00	330	(220 + 110)	$         83
	Machine Maint.		$ 145,600.00	10400	(5400 + 5000)	$         14

3)	OH assigned to Basic Line
	Material Handling		($ 48 x 21)		$         1,008
	Quality Control		($ 83 x 220)		$      18,347
	Machine Maint.		($ 14 x 5400)		$      75,600
	Total OH assigned				$      94,955

4)	OH assigned to Luxury Line
	Material Handling		($ 48 x 44)		$         2,112
	Quality Control		($ 83 x 110)		$   9,173.33
	Machine Maint.		($ 14 x 5000)		$      70,000
	Total OH assigned				$      81,285

5)	In my opinion, ABC system would be more accurate