Question

Bramble, Inc., uses a traditional product costing system to assign overhead costs uniformly to all its...

Bramble, 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, Bramble engages in a high level of quality control. Bramble 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 $71,500. In response to repeated requests from its financial vice president, Bramble’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 5,500 pounds
In-process inspections Number of servings $0.33 per serving 10,000 servings
FDA certification Customer orders $12.00 per order 440 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

$enter a dollar amount

$enter a dollar amount

eTextbook and Media

  

  

By what amount does the traditional product costing system undercost or overcost the low-calorie breakfast line?

$enter the difference between overhead costs under the traditional product costing system and under the activity-based costing system

select between Overcost and Undercost                                                                      OvercostUndercost

eTextbook and Media

  

  

Classify each of the activities as value-added or non–value-added.

Activites

Inspections of material received

select a classification                                                                      Non-value-addedValue-added

In-process inspections

select a classification                                                                      Non-value-addedValue-added

FDA certification

select a classification                                                                      Non-value-addedValue-added

Homework Answers

Answer #1
a
Traditional product costing Activity-based costing
Quality-control overhead cost to be assigned 12155 13530
b
1375 Under cost =13530-12155
c
Inspections of material received Non-value-added
In-process inspections Non-value-added
FDA certification Non-value-added
Workings:
Traditional product costing 12155 =71500*17%
Activity-based costing:
Inspections of material received 4950 =5500*0.90
In-process inspections 3300 =10000*0.33
FDA certification 5280 =440*12.00
Overhead cost to be assigned 13530
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