COMPARING ABC AND PLANTWIDE OVERHEAD COST ASSIGNMENTS The Mackinaw Chocolate Company uses activity-based costing (ABC). The controller identified two activities and their budgeted costs:

Setting up equipment $ 36,000 Other overhead 120,000 Setting up equipment is based on setup hours, and other overhead is based on machine hours.

Mackinaw produces two products, Fudge and Cookies. Information on each product is as follows:

Fudge Cookies Units produced 1,000 5,000 Setup hours 800 200 Oven hours 200 1,000 Required:

Round answers to two decimal places.

. Calculate the activity rate for:

a. setting up equipment

b. other overhead

. How much total overhead is assigned to Fudge using ABC?

. What is the unit overhead assigned to Fudge using ABC?

. Now, ignoring the ABC results, calculate the plantwide overhead rate, based on oven hours.

. How much total overhead is assigned to Fudge using the plantwide overhead rate?

. Explain why the total overhead assigned to Fudge is different under the ABC system

(i.e., using the activity rates) than under the non-ABC system (i.e., using the plantwide rate).

Exercise