Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN: 9781305970663
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
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Transcribed Image Text:(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.
Traditional costing
Activity-based costing
Quality-Control Overhead Cost
+A
$
$
LA
Transcribed Image Text:Waterway Toys & Games, Inc. manufactures specialty toys. Waterway 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, Waterway
assigns its quality-control overhead costs to all products at a rate of 21% of direct labor costs. Its direct labor cost for the month of
August for its toddler line of toys is $321,000. In response to repeated requests from its financial vice president, Waterway'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
Materials Inspection
Assembly Line Inspection
National Toy Association Certification
(a)
Traditional costing
Activity-based costing
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
$
Cost Drivers
Number of pounds
Number of finished toys
Retail orders
$
LA
Overhead
Rate
$0.70 per pound
$0.14 per toy
$2.00 per order
Number of Cost
Drivers Used
per Activity
45,000 pounds
217,000 toys
700 orders
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Step 1
Activity Based Costing Means Allocation Of Overhead Cost To Different Activity Cost Pools. And After getting Activity Rate For All Activity Cost Pool. Activity Rate Is Multiply By The Number Of Cost Driver Used Per Activity.
Activity Rate = (Overhead Cost Pool / Cost Driver)
Cost Assigned = (Number Of Cost Driver Used Per Activity * Activity Rate)
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