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Sweetheart Brands 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
Sweetheart Brands 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: Direct materials Direct labor Sugar $ 0.02 Sugar Substitute 0.04 $ 0.04 0.08 Overhead is currently assigned to the two products based on machine hours. The following information is provided regarding overhead costs: Activity Traceable Costs Cost Driver Sugar Line Sugar Sub. Line Total No. of Setup $ 50,000 125 125 250 setups No. of Packing 120,000 machine 10,000 40,000 50,000 hrs. 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 specific
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