David Mayes, Inc., manufactures plastic and ceramic outdoor dinnerware. The company€™s western plant has changed from a manual-labor operation to a robotics-intensive environment. As a result, management is considering moving from a direct-labor-based overhead rate to an activity-based costing system. The controller has chosen the following activity cost pools and cost drivers for factory overhead:

Required
A. Calculate the overhead rate for each cost driver.
B. An order for 50 ceramic dish sets had the following requirements:
Number of purchase orders ........ 3
Number of setups ............. 20
Number of product tests ........... 7
Machine hours .............. 150
How much overhead should be assigned to this order?
C. Would you expect the new activity-based system to allocate a different amount of overhead?
D. Discuss why using an activity-based system could provide better information to decision makers regarding the setting of sales prices. What other advantages might David Mayes, Inc., realize from the new costingsystem?

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Cost Driver Number of orders Number of setups Number of tests Machine hours Overhead Cost Information Purchase orders Setup costs Testing costs Machine maintenance $200,000 300,000 420,000 800,000 Driver Activity 25,000 15,000 6,000 50,000