Question

Julio produces two types of calculator, standard and deluxe. The company is currently using a traditional costing system with machine hours as the cost driver but is considering a move to activity-based costing. In preparing for the possible switch, Julio has identified two cost pools: materials handling and setup. The collected data follow: Number of machine hours Number of material moves Number of setups Standard Model 26,100 605 65 Deluxe Model 31,100 905 555 Total estimated overhead costs are $347.760, of which $166,100 is assigned to the material handling cost pool and $181,660 is assigned to the setup cost pool. Required: 1. Calculate the overhead assigned to each product using the traditional cost system. 2. Calculate the overhead assigned to each product using ABC. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Calculate the overhead assigned to each product using the traditional cost system. (Round the overhead rate to four decimal places and round your final answer to the nearest whole dollar amount.) Overhead Assigned Standard Model Deluxe Model Resulted Required 2 >

Answer 1

Traditional costing uses single cost driver for allocating cost

cost	driver	Cost per estimated driver	Cost allocated standard [Cost per activity driver*driver used]	Deluxe
$347,760	57,200[26,100+31,100]	$6.0797 per machine hour[$347,760/57,200]	$158,680[$6.0797*26,100 machine hours]	$189,079[31,100*$6.0797]

Standard = $158,680

Deluxe= $189,079

2] ABC costing uses different cost driver for difefrent activity

Activity	Cost	Driver	Cost per driver
Material handling	$166,100	1,510[605+905]	$110 per material move[$166,100/1,510]
Set up cost	$181,660	620[65+555]	$293 per setup [$181,660/620]
	$347,760

now we will allocate the cost

= cost per driver*driver used by product

	Standard	Deluxe
Material handling	$66,550[$110*605]	$99,550[$110*905]
Set up cost	$19,045[$293*65]	$162,615[$293*555]
Total	$85,595	$262,165

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