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Greatly appreciated! Superior Sugar, Inc. packages single-sized servings of sugar and sugar substitute for fast-food restaurants. The activities required to package sugar are fewer and
Greatly appreciated!
Superior Sugar, Inc. packages single-sized servings of sugar and sugar substitute for fast-food restaurants. The activities required to package sugar are fewer and less complex than for the sugar substitute. The direct costs of producing the two products are as follows: Sugar Sugar Substitute Direct materials $ 0.02 $ 0.04 Direct labor 0.04 0.08 Overhead is currently assigned to the two products based on machine hours. The following information is provided regarding overhead costs: Cost Activity Traceable Costs Sugar Line Sugar Sub. Line Total Driver No. of Setup $ 50,000 125 125 250 setups Packing 120,000 No. of machine hrs. 10,000 40,000 50,000 No. of Inspection 30,000 250 350 600 batches $ 200,000 Required: 1) Compute the predetermined overhead rate under the current method of overhead cost allocation. How much total overhead cost will be assigned to each product under the current system? 2) Compute the three activity rates that would be used in an activity-based system. How much total overhead cost will be assigned to each product under an ABC system? 3) Assuming an ABC system to be more precise, by how much does the company's current costing system over-or undercost the products? Be specificStep by Step Solution
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