Question

Hazelnut Corp. manufactures lawn ornaments. It currently has two product lines, the basic and the luxury. Hazelnut has a total of $182,465 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		$	4,200		22 moves	48 moves
Quality control	Number of inspections		$	34,265		240 inspections	145 inspections
Machine maintenance	Number of machine hours		$	144,000		4,800 machine hours	4,800 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.



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?

	Traditional System
	ABC System

Answer 1

1) Overhead assigned under traditional costing

	Basic line	Luxury line
Overhead assigned	182465/9600*4800 = 91233	91232

2) Activity rate

Material handling = 4200/70 = 60 per move

Quality control = 34265/385 = 89 per inspection

Machine maintenance = 144000/96000 = 15 per machine hour

3) Overhead assigned to Basic line

	Basic line
Material handling	60*22 = 1320
Quality control	89*240 = 21360
Machine maintenance	72000
Total overhead assigned	94680

4) Overhead assigned to Luxury line

	Luxury line
Material handling	60*48 = 2880
Quality control	89*145 = 12905
Machine maintenance	72000
Total overhead assigned	87785

5) ABC Cost