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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 $ 25,600 80 runs
Processing orders Number of orders 43,200 180 orders
Handling materials Pounds of materials 18,000 9,000 pounds
Using machines Machine-hours 63,000 9,000 hours
Providing quality management Number of inspections 56,000 40 inspections
Packing and shipping Units shipped 40,000 20,000 units
$ 245,800

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 1,000 500 400
Direct materials costs $ 4,000 $ 2,500 $ 2,500
Direct labor-hours 110 110 120
Number of orders 9 7 3
Number of production runs 2 4 9
Pounds of material 400 900 300
Machine-hours 400 300 200
Number of inspections 2 2 2
Units shipped 1,000 500 300

Direct labor costs were $18 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 a. 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 a. (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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