Larkspur Corp. manufactures bird feeders. It currently has two product lines, the standard and the deluxe. Larkspur has a total of $137,250 in overhead.

The company has identified the following information about its overhead activity pools and the two product lines:

Required:

1. Suppose Larkspur used a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line.

2. Calculate the activity rates for each cost pool in Larkspur’s ABC system.

3. Calculate the amount of overhead that Larkspur will assign to the standard line if it uses an ABC system.

4. Determine the amount of overhead Larkspur will assign to the deluxe line if it uses an ABC system.

5. Compare the results for a traditional system with that of an ABC system. Which do you think is more accurate and why?

Transcribed Image Text:

Activity Pools Material handling Cost Driver to Pool Number of moves $ 3,500 Cost Assigned Qty Consumed Qty Consumed by Standard 20 moves by Deluxe 50 moves Quality control Machine maintenance Number of inspections Number of machine hrs $ 33,750 250 inspections 125 inspections $100,000 5,000 machine hours 5,000 machine hours