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 $ 36,000 120 runs Processing orders Number of orders 52,800 220 orders Handling materials Pounds of materials 14,000 7,000 pounds Using machines Machine hours 48,000 8,000 hours Providing quality management Number of inspections 48,000 40 inspections Packing and shipping Units shipped 38,000 19,000 units $ 236,800 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 800 500 500 Direct materials costs $ 5,000 $ 2,000 $ 2,000 Direct labor hours 110 100 120 Number of orders 9 8 4 Number of production runs 2 3 8 Pounds of material 400 800 200 Machine hours 400 300 200 Number of inspections 3 2 1 Units shipped 800 500 400 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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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	$	36,000	120	runs
Processing orders	Number of orders		52,800	220	orders
Handling materials	Pounds of materials		14,000	7,000	pounds
Using machines	Machine-hours		48,000	8,000	hours
Providing quality management	Number of inspections		48,000	40	inspections
Packing and shipping	Units shipped		38,000	19,000	units
		$	236,800

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		800		500		500
Direct materials costs	$	5,000	$	2,000	$	2,000
Direct labor-hours		110		100		120
Number of orders		9		8		4
Number of production runs		2		3		8
Pounds of material		400		800		200
Machine-hours		400		300		200
Number of inspections		3		2		1
Units shipped		800		500		400

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.)