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 a rate of 17% of direct labor costs. Its direct labor cost for the month of June for its low-calorie breakfast line is $75,000. 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 (a) Cost Drivers Number of pounds Number of servings Customer orders Quality-control overhead cost to be assigned Overhead Rate $0.90 $ $0.33 $12.00 per pound per serving 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 Number of Cost Drivers Used per Activity 5,900 pounds 10,400 servings $ 400 orders Activity-based costing
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 a rate of 17% of direct labor costs. Its direct labor cost for the month of June for its low-calorie breakfast line is $75,000. 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 (a) Cost Drivers Number of pounds Number of servings Customer orders Quality-control overhead cost to be assigned Overhead Rate $0.90 $ $0.33 $12.00 per pound per serving 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 Number of Cost Drivers Used per Activity 5,900 pounds 10,400 servings $ 400 orders Activity-based costing
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter14: Quality And Environmental Cost Management
Section: Chapter Questions
Problem 6CE: Pinter Company had the following environmental activities and product information: 1. Environmental...
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Transcribed Image Text: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 a rate of 17% of
direct labor costs. Its direct labor cost for the month of June for its low-calorie breakfast line is $75,000. 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
(a)
Cost Drivers
eTextbook and Media
Number of pounds
Number of servings
Customer orders
Quality-control overhead cost to be assigned
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Overhead
Rate
$
$0.90
$0.33
$12.00
per pound
per serving
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
Number of Cost Drivers
Used per Activity
5,900 pounds
10,400 servings
S
400
orders
Activity-based costing
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