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Hazelnut Corporation manufactures lawn ornaments. It currently has two product lines, the basic and the luxury. Hazelnut has a total of $167,475 in overhead. The

Hazelnut Corporation manufactures lawn ornaments. It currently has two product lines, the basic and the luxury. Hazelnut has a total of $167,475 in overhead.

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

Activity Pools Cost Driver Cost Assigned to Pool Quantity or Amount Consumed by Basic Quantity or Amount Consumed by Luxury
Materials handling Number of moves $ 3,835 20 moves 45 moves
Quality control Number of inspections $ 29,240 240 inspections 120 inspections
Machine maintenance Number of machine hours $ 134,400 5,500 machine hours 4,100 machine hours

Required:

  1. Suppose Hazelnut 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 activity pool in Hazelnuts ABC system.
  3. Calculate the amount of overhead that Hazelnut will assign to the basic line if it uses an ABC system.
  4. Determine the amount of overhead Hazelnut will assign to the luxury 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?

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