Question

Health 'R Us, Inc., uses a traditional product costing system to assign overhead costs uniformly to all its packaged multigrain products. To meet Food and Drug Administration requirements and to assure its customers of safe, sanitary, and nutritious food, Health 'R Us engages in a high level of quality control. Health 'R Us assigns its quality control overhead costs to all products at arate of 17% of direct labor costs. Its direct labor cost for the month of June for its low-calorie breakfast line is $70,500. In response to repeated requests from its financial vice president, Health 'R Us's management agrees to adopt activity-based costing. Data relating to the low-calorie breakfast line for the month of June are as follows. Activity Cost Pools Inspections of material received In-process inspections FDA certification Cost Drivers Number of pounds Number of servings Customer orders Overhead Rate $0.90 per pound $0.33 per serving $12.00 Number of Cost Drivers Used per Activity 6,200 pounds 9,500 servings 450 orders per order Compute the quality control overhead cost to be assigned to the low-calorie breakfast product line for the month of June (1) using the traditional product costing system (direct labor cost is the cost driver), and (2) using activity-based costing. Traditional product costing Activity-based costing Quality control overhead cost to be assigned $ 11,985 $ 14.115

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Answer 1

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Traditional @ Product Costing Based Costing Quality Control Overhead Cost to be assigned $ 11.985 $ 14,115 The amount of the traditional product casting System undercost or overcost the low-calorie breakfast line : $2,130 (14115-11985) Unohercast Anspection of material recesed SM-process inspection FDA certification Non-alue-colated Non-vélec-adoled Non-slee-added Workings & Traditional product Casting Quality Control Overhead Cost to be 70500X 17% assigned in June a $ 11985 Rosed Costing & No. of Cost Overhead Overhead Cost Actiny Cast Posts Andrors Used Assigned 6,200 $ 5,580 Fangspartion or mutasual ziemcied Sora process inspection 9,500 $0:33 $ 3,135 A Costification 450 $14, 115 Que diely Control Overhead to be odlibres in Mure $ 19.00 $ 5400