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