08 Dec E4-13 Healthy Products, Inc., uses a traditional p
E4-13 Healthy Products, Inc., uses a traditional product costing system to assign over-head costs uniformly to all products. To meet Food and Drug Administration requirements and to assure its customers of safe, sanitary, and nutritious food, Healthy engages in a high level of quality control. Healthy assigns its quality-control overhead costs to all products at a rate of 17% of direct labor costs. Its direct labor cost for the month of June for its low-calorie dessert line is $65,000. In response to repeated requests from its ?nancial vice president, Healthy’s management agrees to adopt activity-based costing. Data relating to the low-calorie dessert line for the month of June are as follows. Number of Cost Overhead Drivers UsedActivity Cost Pools Cost Drivers Rate per ActivityInspections of material received Number of pounds $0.80 per pound 6,000 poundsIn-process inspections Number of servings $0.33 per serving 10,000 servingsFDA certi?cation Customer orders $12.00 per order 420 ordersInstructions(a) Compute the quality-control overhead cost to be assigned to the low-calorie dessert product line for the month of June (1) using the traditional product costing system (direct labor cost is the cost driver), and (2) using activity-based costing.(b) By what amount does the traditional product costing system undercost or overcost the low calorie dessert line?(c) Classify each of the activities as value-added or non-value-added.
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