Hazelnut Corporation manufactures lawn ornaments. It currently has two product lines, the basic and the luxury. Hazelnut has a total of $156,435 in overhead.

The company has identified the following information about its overhead activity pools and the two product lines:

Activity Pools	Cost Driver	Cost Assigned to Pool	Quantity or Amount Consumed by Basic	Quantity or Amount Consumed by Luxury
Materials handling	Number of moves	$ 4,235	14	moves	63	moves
Quality control	Number of inspections	$ 37,000	220	inspections	110	inspections
Machine maintenance	Number of machine hours	$ 115,200	5,100	machine hours	4,500	machine hours
Required:
Suppose Hazelnut used a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line.

To determine the amount of overhead assigned to each product line using a traditional costing system with machine hours as the cost driver, we follow these steps:

1. **Calculate the total number of machine hours**:
   \[
   \text{Total machine hours} = \text{Machine hours for Basic} + \text{Machine hours for Luxury}
   \]
   \[
   \text{Total machine hours} = 5,100 + 4,500 = 9,600 \text{ hours}
   \]

2. **Determine the overhead rate per machine hour**:
   \[
   \text{Overhead rate per machine hour} = \frac{\text{Total overhead}}{\text{Total machine hours}}
   \]
   \[
   \text{Overhead rate per machine hour} = \frac{156,435}{9,600} = 16.2953125 \approx 16.30 \text{ (rounded to two decimal places)}
   \]

3. **Calculate the overhead assigned to each product line**:
   \[
   \text{Overhead assigned to Basic} = \text{Machine hours for Basic} \times \text{Overhead rate per machine hour}
   \]
   \[
   \text{Overhead assigned to Basic} = 5,100 \times 16.30 = 83,130
   \]

   \[
   \text{Overhead assigned to Luxury} = \text{Machine hours for Luxury} \times \text{Overhead rate per machine hour}
   \]
   \[
   \text{Overhead assigned to Luxury} = 4,500 \times 16.30 = 73,305
   \]

So, the amount of overhead assigned to each product line is:
- **Basic product line**: \$83,130
- **Luxury product line**: \$73,305

Would you like more details or have any questions?

Here are 8 related questions you might find interesting:

1. How would the overhead allocation change if another cost driver was used instead of machine hours?
2. What are the implications of using machine hours as the cost driver in a traditional costing system?
3. How can activity-based costing (ABC) provide a more accurate overhead allocation compared to traditional costing?
4. What factors should be considered when choosing a cost driver for overhead allocation?
5. How does overhead allocation affect the pricing of products?
6. Can you calculate the overhead per unit if the number of units produced for each product line is known?
7. How does the proportion of machine hours used by each product line affect the overall overhead allocation?
8. What are the potential challenges of implementing a traditional costing system in a manufacturing company?

**Tip:** Always review the cost drivers chosen for overhead allocation to ensure they accurately reflect the consumption of overhead resources by different product lines. This can lead to more accurate product costing and better decision-making.

Learn how to allocate overhead costs using machine hours as the cost driver in a traditional costing system. This problem involves calculating overhead assigned to each product line based on specific cost drivers and quantities consumed. Suitable for professionals and students studying managerial accounting.

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