Question

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

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