PB4-2 (Static) Assigning Costs Using Traditional System, Assigning Costs Using Activity Proportions [LO 4-1, 4-3, 4-5, 4-6]
Paradiso Corporation is the manufacturer of food processors. It currently has two product lines, the Basic and the Industrial. Paradiso has $85,170 in total overhead.
The company 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 Industrial
Materials handling Number of moves $ 21,420 235 moves 275 moves
Quality control Number of inspections $ 43,350 578 inspections 867 inspections
Machine maintenance Number of machine hours $ 20,400 18,000 machine hours 16,000 machine hours
Required:
Suppose Paradiso used a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line.
Calculate the activity proportions for each activity pool in Paradiso’s ABC system.
Calculate the amount of overhead that Paradiso will assign to the Basic product line if it uses an ABC system.
Determine the amount of overhead Paradiso will assign to the Industrial product line if it uses an ABC system.
Compare the results for a traditional system with those of an ABC system. Which do you think is more accurat