The Spring Moon is a Toronto-based small business that specializes in the creation of unique jewelries. For
Question:
The Spring Moon is a Toronto-based small business that specializes in the creation of unique jewelries. For the fiscal 2020, it has budgeted overhead costs of $180,000. It has allocated overhead on a plant-wide basis to its two products (pendant necklaces and glass bracelets) using direct labor hours which are estimated to be 25,000 for the current year. The company has decided to implement the activity-based costing and has created two activity cost pools and related activity cost drivers. These two cost pools are: molding (cost driver is number of batches) and coating (cost driver is machine hours). Overhead allocated to the Molding cost pool is $74,300. Overhead allocated to the Coating cost pool is $105,700. Additional information related to these pools is as follows.
Machine hours | Number of batches | |
Pendant Necklaces | 730 | 2,890 |
Glass Bracelets | 1,850 | 3,050 |
Total | 2,580 | 5,940 |
Instructions
(a) Determine the amount of overhead allocated to the pendant necklaces product line and the glass bracelets product line using activity-based costing. (5 marks)
(b) What is the difference between the allocation of overhead to the pendant necklaces and glass bracelets product lines using activity-based costing versus the traditional approach, assuming direct labor hours were incurred evenly between the pendant necklaces and glass bracelets?