College Supply Company (CSC) makes three types of drinking glasses short, medium, and tall It presently applies overhead using a predetermined rate based on direct labor hours A group of company employees recommended that CSC switch to activity based costing and identified the following activities, cost drivers, estimated costs, and estimated cost driver units for Year 5 for each activity center Activity Recommended Cost Driver Estimated Cost Estimated Cost Driver Units Setting up production Number of production runs $ 22,400 80 runs Processing orders Number of orders 48,000 200 orders Handling materials Pounds of materials 14,000 7,000 pounds Using machines Machine hours 60,000 10,000 hours Providing quality management Number of inspections 48,000 40 inspections Packing and shipping Units shipped 38,000 19,000 units $ 230,400 In addition, management estimated 2,000 direct labor hours for year 5 Assume that the following cost driver volumes occurred in February, year 5 Short Medium Tall Number of units produced 1,100 500 400 Direct materials costs $ 3,000 $ 2,500 $ 2,000 Direct labor hours 90 110 110 Number of orders 8 7 5 Number of production runs 1 4 8 Pounds of material 400 900 200 Machine hours 500 200 300 Number of inspections 3 1 2 Units shipped 1,100 500 300 Direct labor costs were $20 per hour Required a Compute a predetermined overhead rate for year 5 for each cost driver recommended by the employees Also compute a predetermined rate using direct labor hours as the allocation base b Compute the production costs for each product for February using direct labor hours as the allocation base and the predetermined rate computed in requirement c Compute the production costs for each product for February using the cost drivers recommended by the employees and the predetermined rates computed in requirement ( Note Do not assume that total overhead applied to products in February will be the same for activity based costing as it was for the labor hour based allocation )

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College Supply Company (CSC) makes three types of drinking glasses: short, medium, and tall. It presently applies overhead using a predetermined rate based on direct

College Supply Company (CSC) makes three types of drinking glasses: short, medium, and tall. It presently applies overhead using a predetermined rate based on direct labor-hours. A group of company employees recommended that CSC switch to activity-based costing and identified the following activities, cost drivers, estimated costs, and estimated cost driver units for Year 5 for each activity center.

Activity	Recommended Cost Driver	Estimated Cost		Estimated Cost Driver Units
Setting up production	Number of production runs	$	22,400	80	runs
Processing orders	Number of orders		48,000	200	orders
Handling materials	Pounds of materials		14,000	7,000	pounds
Using machines	Machine-hours		60,000	10,000	hours
Providing quality management	Number of inspections		48,000	40	inspections
Packing and shipping	Units shipped		38,000	19,000	units
		$	230,400

In addition, management estimated 2,000 direct labor-hours for year 5.

Assume that the following cost driver volumes occurred in February, year 5.

	Short		Medium		Tall
Number of units produced		1,100		500		400
Direct materials costs	$	3,000	$	2,500	$	2,000
Direct labor-hours		90		110		110
Number of orders		8		7		5
Number of production runs		1		4		8
Pounds of material		400		900		200
Machine-hours		500		200		300
Number of inspections		3		1		2
Units shipped		1,100		500		300

Direct labor costs were $20 per hour.

Required:

a. Compute a predetermined overhead rate for year 5 for each cost driver recommended by the employees. Also compute a predetermined rate using direct labor-hours as the allocation base. b. Compute the production costs for each product for February using direct labor-hours as the allocation base and the predetermined rate computed in requirement c. Compute the production costs for each product for February using the cost drivers recommended by the employees and the predetermined rates computed in requirement (Note: Do not assume that total overhead applied to products in February will be the same for activity-based costing as it was for the labor-hour-based allocation.)