Coronado, Inc. manufactures specialty toys. Trendy 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, Trendy assigns its quality-control overhead costs to all products at a rate of 23% of direct labor costs. Its direct labor cost for the month of August for its toddler line of toys is $331,000. In response to repeated requests from its financial vice president, Trendy’s 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 pounds Number of pounds $0.80 per pound 42,000
Assembly Line Inspection Number of finished toys $0.16 per toy 163,000 toys
National Toy Association Certification Retail orders $2.00 per order 800 orders
(a)
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Correct Answer
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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 $
76,130
Activity-based costing $
61,280
eTextbook and Media
Solution
Attempts: 1 of 1 used
(b)
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By what amount does the traditional product costing system undercost or overcost the toddler toy line?

The traditional product costing system
undercost
overhead by $
14,850
.
eTextbook and Media
Solution
Attempts: 1 of 1 used
(c)
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Classify each of the activities as value-added or not-value added.

Materials Inspection
Non-value added
Assembly Line Inspection
Non-value added
National Toy Association
Non-value added
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Attempts: 1 of 1 used
(d)
Trendy Toys is exploring options to help reduce overhead costs especially for non-value added activities. One of the proposals is from the National Toy Association. For an additional $1 per order, this entity could perform additional safety checks that would reduce the assembly line inspection costs by $0.01 per toy. Compute the overhead cost assigned to the toddler toy line for the month of August using activity-based costing under this proposal.

Overhead cost assigned $

Should Trendy Toys accept the National Toy Association’s offer?

Trendy Toys
accept this offer.