Horse Groomers Inc Assume a Traditional Costing System Applies the $100 000 of a Deluxe

question 24

Essay

Horse Groomers Inc.manufactures two models of grooming stations,a standard and a deluxe model.The following activity and cost information has been compiled:
$$\begin{array} { l r r r } \text { Product } & \begin{array} { r } \text { Number of } \\\text { Set-ups }\end{array} & \begin{array} { r } \text { Number of } \\\text { Components }\end{array} & \begin{array} { r } \text { Number of } \\\text { Direct labour hours }\end{array} \\\text { Standard } & 3 & 30 & 700 \\\text { Deluxe } & 7 & 50 & 200 \\\text { Overhead costs } & \$ 30000 & \$ 70000 &\end{array}$$
Assume a traditional costing system applies the $100 000 of overhead costs based on direct labour hours.
a.What is the total amount of overhead costs assigned to the standard model?
b.What is the total amount of overhead costs assigned to the deluxe model?
Assume an activity-based costing system is used and that the number of set-ups and the number of components are identified as the activity-cost drivers for overhead.
c.What is the total amount of overhead costs assigned to the standard model?
d.What is the total amount of overhead costs assigned to the deluxe model?
e.Explain the difference between the costs obtained from the traditional costing system and the ABC system.Which system provides a better estimate of costs? Why?
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