Question

Hazelnut Corp. manufactures lawn ornaments. It currently has two product lines, the basic and the luxury. Hazelnut has a total of $132,398 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		$	3,498		30 moves	36 moves
Quality control	Number of inspections		$	27,900		220 inspections	110 inspections
Machine maintenance	Number of machine hours		$	101,000		5,400 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.)

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.)

	Activity Rates 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.)

	Basic Model Materials Handling Quality Control Machine Maintenance Total Overhead Assigned $0

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.)

	Luxury Model Materials Handling Quality Control Machine Maintenance Total Overhead Assigned $0

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. 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 132398/10100*5400 = 70787 Overhead Assigned

Luxury Model. = 61611 Overhead Assigned

2. Calculate the activity rates for each cost pool in Hazelnut’s ABC system. (Round your answers to the nearest whole dollar.)

	Activity Rates Materials Handling 53 per Move Quality Control 85 per Inspection Machine Maintenance 10 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.)

	Basic Model Materials Handling 1590 Quality Control 18700 Machine Maintenance 54000 Total Overhead Assigned $74290

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.)

	Luxury Model Materials Handling 1908 Quality Control 9350 Machine Maintenance 47000 Total Overhead Assigned $58258

Compare the results for a traditional system with that of an ABC system. Which do you think is more accurate?

• ABC System