Problem

Assigning Costs Using Traditional System, Assigning Costs Using Activity ProportionsWildwi...

Assigning Costs Using Traditional System, Assigning Costs Using Activity Proportions

Wildwind Corp. is the manufacturer of wind chimes. It currently has two product lines, the Clear Tone and the Bella. Wildwind has $61,200 in total overhead.

The company has identified the following information about its overhead activity pools and the two product lines.

 

 

Cost Assigned

to Pool

Quantity/Amount

Consumed Clear Tone

Quantity/Amount

Consumed Bella

Activity Pools

Cost Driver

Material handling

Number of

$15,300

235 moves

275 moves

Quality control

Number of

$28,900

578 inspections

867 inspections

Machine maintenance

inspections

Number of

$17,000

18,000 machine

16,000 machine

 

machine hours

 

hours

hours

Required:

1.Suppose Wildwind used a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line.


2. Calculate the activity proportions for each cost pool in Wildwind's ABC system.


3. Calculate the amount of overhead that Wildwind will assign to the ClearTone product line if it uses an ABC system.


4. Determine the amount of overhead Wildwind will assign to the Bella product line if it uses an ABC system.


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

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