Exercise 17-11 (Part Level Submission)

Health 'R Us, 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, Health 'R Us engages in a high level of quality control. Health 'R Us 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 $74,000. In response to repeated requests from its financial vice president, Health 'R Us'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 10,700 servings

FDA Certification Customer Orders $12.00 per order 430 orders

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

$__________ (Overcost) or (Undercost)