Assigning Costs Using Traditional System, Assigning Costs Using Activity Proportions
HulaHug Corp., which manufactures hula hoops, currently has two product lines, the Roundabout and the Sassafras. HulaHug has total overhead of $131,200.
HulaHug has identified the following information about its overhead activity pools and the two product lines.
|
| Cost Assigned to Pool | Quantity/Amount Consumed Roundabout Line | Quantity/Amount Consumed Sassafras Line |
Activity Pools | Cost Driver | |||
Material handling | Number of moves | $19,650 | 575 moves | 425 moves |
Quality control | Number of inspections | $78,750 | 6,000 inspections | 4,500 inspections |
Machine | Number of | $32,800 | 21,000 machine | 20,000 machine |
maintenance | machine hours |
| hours | hours |
Required:
1.Suppose HulaHug 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 HulaHug's ABC system.
3. Calculate the amount of overhead that HulaHug will assign to the Roundabout line if it uses an ABC system.
4. Determine the amount of overhead HulaHug will assign to the Sassafras line if it uses an ABC system.
5. Compare the results for a traditional system with an ABC system. Which do you think is more accurate and why?
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