Waterway Toys & Games, Inc. manufactures specialty toys. Waterway uses a traditional product costing system to assign overhead costs uniformly to all products. To meet industry safety standards and to assure its customers of safe and durable toys, Waterway assigns its quality-control overhead costs to all products at a rate of 21% of direct labor costs. Its direct labor cost for the month of August for its toddler line of toys is $337,000. In response to repeated requests from its financial vice president, Waterways management agrees to adopt activity-based costing. Data relating to the toddler line of toys for the month of August are as follows:

Activity Cost Pools		Cost Drivers		Overhead Rate		Number of Cost Drivers Used per Activity
Materials Inspection		Number of pounds		$0.70 per pound		50,000 pounds
Assembly Line Inspection		Number of finished toys		$0.16 per toy		199,000 toys
National Toy Association Certification		Retail orders		$2.00 per order		900 orders

(a)

Correct answer icon

Your answer is correct.

Compute the quality-control overhead cost to be assigned to the toddler toy line for the month of August (1) using the traditional product costing system (direct labor is the cost driver), and (2) using activity-based costing.

		Quality-Control Overhead Cost
Traditional costing		$70770
Activity-based costing		$68640

eTextbook and Media

Attempts: 2 of 3 used

(b)

By what amount does the traditional product costing system under-cost or over-cost the toddler toy line?

The traditional product costing system select an option overcosts undercost overhead by $enter a dollar amount .