Question
Trendy Toys & Games, Inc. manufactures specialty toys. Trendy uses a traditional product costing system to...
Trendy Toys & Games, Inc. manufactures specialty toys. Trendy uses a traditional product costing system to assign overhead costs uniformly to all products. To meet industry safety standards and to assure its customers of safe and durable toys, Trendy assigns its quality-control overhead costs to all products at a rate of 22% of direct labor costs. Its direct labor cost for the month of August for its toddler line of toys is $302,000. In response to repeated requests from its financial vice president, Trendy’s management agrees to adopt activity-based costing. Data relating to the toddler line of toys for the month of August are as follows:
| Activity Cost Pools | Cost Drivers | Overhead Rate |
Number of Cost Drivers Used per Activity |
|||
| Materials Inspection pounds | Number of pounds | $0.70 per pound | 40,000 | |||
| Assembly Line Inspection | Number of finished toys | $0.14 per toy | 179,000 toys | |||
| National Toy Association Certification | Retail orders | $2.00 per order | 1,100 orders |
(a)
Compute the quality-control overhead cost to be assigned to the toddler toy line for the month of August (1) using the traditional product costing system (direct labor is the cost driver), and (2) using activity-based costing.
| Quality-Control Overhead Cost | ||
| Traditional costing | $ | |
| Activity-based costing | $ |
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