Answer:
Garden Zurich Corp.
a. Traditional costing system with machine hours as the cost driver:
Overhead rate = $171,500/10,000 = $17.15
Overhead assigned to each product line:
Basic = $85,750 ($17.15 * 5,000)
Luxury = $85,750 ($17.15 * 5,000)
b. Activity rates for each cost pool:
Materials handling = $200 ($14,000/70)
Quality control = $100 ($37,500/375)
Machine maintenance = $120 ($120,000/1,000)
Explanation:
a) Data and Calculations:
Total overhead = $171,500
Basic Luxury
Direct costs $200 $300
Selling price 500 750
Contribution $300 $450
Production units 800 500
Activity Cost Cost Driver Cost Assigned to Pool Quantity/Amount
Pools Basic Luxury
Materials handling Number of moves $14,000 20 50 moves
Quality control Number of inspections $37,500 250 125 inspec.
Machine Number of machine
maintenance hours $120,000 5,000 5,000 m.hour
Total overhead costs $171,500
