Amazon Company manufactures two products that can be produced on two different production lines; DVDs and Videotapes. The following activity and cost information has been accumulated: Number of...

Amazon Company manufactures two products that can be produced on two different production lines; DVDs and Videotapes. The following activity and cost information has been accumulated:

                                                                                                     Number of

Product              Supervision             Inspection        Direct Labor Hours

DVDs                                  48                        480                                 5,200

Videotapes                        112                        800                                  2800

Overhead costs        $160,000               $480,000

Required:

1. If Amazon was using the traditional costing system with direct labor hours as the overhead costs allocation base: Calculate the total amount of overhead costs assigned to the DVDs and Videotapes

Managers have decided to revise their current assignment of overhead costs; Supervision and Inspection are identified as the activity-cost drivers for overhead:

1. Compute the cost-driver rate for each overhead activity.


2. What is the total amount of overhead costs assigned to DVDs and Videotapes?

Explain the difference between the Overhead costs obtained from the traditional costing system and the ABC system. Which system provides a better estimate of costs? Why?