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 $74,000. 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 Cost Drivers Overhead Rate Number of Cost Drivers Used per Activity Inspections of material received Number of pounds $0.90 per pound 5,700 pounds In-process inspections Number of servings $0.33 per serving 10,600 servings FDA certification Customer orders $12.00 per order 490 orders 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 Activity-based costing Quality-control overhead cost to be assigned $ $ eTextbook and Media By what amount does the traditional product costing system undercost or overcost the low-calorie breakfast line? $
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 $74,000. 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 Cost Drivers Overhead Rate Number of Cost Drivers Used per Activity Inspections of material received Number of pounds $0.90 per pound 5,700 pounds In-process inspections Number of servings $0.33 per serving 10,600 servings FDA certification Customer orders $12.00 per order 490 orders 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 Activity-based costing Quality-control overhead cost to be assigned $ $ eTextbook and Media By what amount does the traditional product costing system undercost or overcost the low-calorie breakfast line? $
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter6: Process Costing
Section: Chapter Questions
Problem 21E: Dama Company produces womens blouses and uses the FIFO method to account for its manufacturing...
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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 $74,000. 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
|
Cost Drivers
|
Overhead
Rate |
Number of Cost Drivers
Used per Activity |
|||||
Inspections of material received | Number of pounds | $0.90 | per pound | 5,700 | pounds | |||
In-process inspections | Number of servings | $0.33 | per serving | 10,600 | servings | |||
FDA certification | Customer orders | $12.00 | per order | 490 | orders |
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
|
Activity-based costing
|
|||
Quality-control overhead cost to be assigned |
$
|
$
|
eTextbook and Media
By what amount does the traditional product costing system undercost or overcost the low-calorie breakfast line?
$
|
eTextbook and Media
Classify each of the activities as value-added or non–value-added.
Activites
|
||
Inspections of material received |
|
|
In-process inspections |
|
|
FDA certification |
|
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