E4-14 Assigning Costs Using Traditional System, ABC System [LO 4-1, 4-3, 4-4, 4-

Question

E4-14 Assigning Costs Using Traditional System, ABC System [LO 4-1, 4-3, 4-4, 4-5 Julio produces two types of calculator, standard and deluxe. The company is currently using a traditional costing system with machine hours as the cost driver but is considering a move to activity-based costing. In preparing for the possible switch, Julio has identified two cost pools: materials handling and setup. The collected data follow: Standard Model Number of machine hours Number of material moves Number of setups 25,900 595 95 Deluxe Model 30,900 895 545 Total estimated overhead costs are $365,040, of which $178,800 is assigned to the material handling cost pool and $186,240 is assigned to the setup cost pool. Required 1. Calculate the overhead assigned to each product using the traditional cost system. (Round the overhead rate to four decimal places.) Overhead assigned Standard Model Deluxe Model 2. Calculate the overhead assigned to each product using ABC. Overhead Assigned 99,045 265,995 Standard Model s Deluxe Model

Explanation / Answer

1) Overhead assigned under traditional costing :

Overhead rate = 365040/56800 = 6.4268 per machine hour

Standard model = 25900*6.4268 = 166453

Deluxe model = 30900*6.4268 = 198587

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