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problem: Flavor land Brands packages single sized servings of sugar and sugar substitute for fast food restaurants. The activities needed to package sugar are fewer & less complex than for sugar substitute. The direct price of producing the two products is as follows;

 

Sugar

Sugar Substitute

Direct materials

$0.01

$0.02

Direct labor

$0.02

$0.04

Overhead is currently assigned to the two products on the basis of machine hours. The following data is provided regarding overhead costs:

COST DRIVER DATA

ACTIVITY

TRACEABLE

COST

SUGAR

SUGAR

 

 

COSTS

DRIVER

LINE

SUB LINE

TOTAL

Setup

$75,000

Number of setups

50

100

150

 

 

 

 

 

 

Packing

$125,000

Number of machine hours

10,000

15,000

25,000

 

 

 

 

 

 

Inspection

$25,000

Number of batches

200

300

500

Required

[A] find out the predetermined overhead rate under the current method of overhead cost allocation. How much total overhead cost will be assigned to each product under the current system?
[B] find out the three (3) activity rates that would be used in an activity-based system. How much total overhead cost will be assigned to each product under an ABC system?
[C] Suppose an ABC system to be more precise, by how much does the firm's current costing system over or under cost the products? Be specific.

Cost Accounting, Accounting

  • Category:- Cost Accounting
  • Reference No.:- M921781

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