Question 11 of 14 -13 Oriole, 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, Oriole engages in a high level of quality control. Oriole 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 $68,500. In response to repeated requests from its financial vice president, Orioles management agrees to adopt activity-based costing. Data relating to the low-calorie breakfast line for the month of June are as follows. Overhead Number of Cost Drivers Activity Cost Pools Cost Drivers Used per Activity Inspections of material received Number of pounds $0.90 per pound 5,600 pounds In-process inspections Number of servings $0.33 per serving 10,600 servings FDA certification Customer orders $12.00 per order 430 orders Rate Compute the quality control overhead cost to be assigned to the low-calorie breakfast product line for the month of June (1) using the traditional product costing system (direct labor cost is the cost driver), and (2) using activity-based costing. Traditional product costing Activity-based costing Quality control overhead cost to be assigned S Question 11 of 14 -13 By what amount does the traditional product costing system undercost or overcost the low-calorie breakfast line? $ e Textbook and Media Classify each of the activities as value-added or non-value-added. Activites Inspections of material received In-process inspections FDA certification e Textbook and Media Question 14 of 14 - 75 Lewis and Stark is a public accounting firm that offers two primary services, auditing and tax-return preparation. A controversy has developed between the partners of the two service lines as to who is contributing the greater amount to the bottom line. The area of contention is the assignment of overhead. The taxpartners argue for assigning overhead on the basis of 40% of direct labor dollars, while the audit partners argue for implementing activity-based costing. The partners agree to use next year's budgeted data for purposes of analysis and comparison. The following overhead data are collected to develop the comparison. Estimated Use of Cost Drivers per Service Estimated Use Estimated of Activity Cost Pools Cost Drivers Doverhead Cost Drivers Audit Tax Employee training Direct labor dollars $213.300 $1.777.500 $1,106,000 $671,500 Typing and secretarial Number of reports/forms 76.800 2.500 800 1.700 Computing Number of minutes 192,600 60,000 27.000 33,000 Facility rental Number of employees 147.000 40 22 18 Travel Per expense reports 81.300 Direct 56,000 25,300 $711.000 Question 14 of 14 -15 E Using activity-based costing, prepare a schedule showing the computations of the activity based overhead rates (per cost driver). (Round overhead rates to 2 decimal places, eg. 12.25.) Estimated Overhead Activity Cost Pools Employee training Typing and secretarial Expected Use of Cost Drivers per Activity Direct labor dollars Activity-Ba Overhead R $ $ $ Reports/forms $ I Computing Minutes $ Facility rental Employees $ Travel Direct Direct s Question 14 of 14 - 75 E driver). Round overhead rates to 2 decimal places, e.g. 12.25.) Estimated Overhead Expected Use of Cost Drivers per Activity Direct labor dollars $ $ Activity-Based Overhead Rates per DL dollar per report/form Reports/forms S Minutes $ per minute Employees $ per employee Direct Direct Question 14 of 14 -/5 Prepare a schedule assigning each activity's overhead cost pool to each service based on the use of the cost drivers. (Round overhead rates to 2 decimal places, eg. 12.25 and cost assigned to decimal places, e.g. 2,500.) Estimated Use of Cost Drivers Audit Activity-Based Overhead Rates Cost Assigned $ VA Activity Cost Pool Employee training Typing and secretarial Computing $ $ Facility rental S Travel Direct I Overhead costs assigned estion 14 of 14 -/5 Prepare a schedule assigning each activity's overhead cost pool to each service based on the use of the cost drivers. (Round overhead rates to 2 decimal places, eg. 12.25 and cost assigned to 0 decimal places, eg. 2,500.) Tax Activity-Based Overhead Rates Estimated Use of Cost Drivers Cost Assigned Cost Assigned $ $ $ $ $ $ $ Direct I $