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 Setting up production Processing orders Handling materials Using machines Providing quality management Packing and shipping Recommended Cost Driver Number of production runs Number of orders Pounds of materials Machine-hours Number of inspections Units shipped Estimated Cost $ 24,000 43. 200 18.000 66,000 56.000 38.000 $245,200 Estimated Cost Driver Units 80 runs 180 orders 9,000 pounds 11.000 hours 40 inspections 19.000 units In addition, management estimated 2,000 direct labor-hours for year 5. Assume that the following cost driver volumes occurred in February, year 5: Tall 300 Short 900 $4,000 100 Medium 400 $2,500 130 $1,500 100 Number of units produced Direct materials costs Direct labor-hours Number of orders Number of production runs Pounds of material Machine hours Number of inspections Units shipped 400 700 200 200 200 400 2 900 400 200 Direct labor costs were S20 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. (Round your answers to 2 decimal places.) Activity Setting up production Processing orders Handling materials Using machines Performing quality management Packing & shipping Direct labor hour rate Allocation Rate per run per order per lb. per hour per insp. per unit per hour 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. (Do not round intermediate calculations.) Tall $ Short Medium 4,000 $ 2,500 $ 1,500 Direct materials Direct labor Overhead Total costs $ 4.000 $ 2,500 $ 1,500 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.) (Do not round intermediate calculations.) Short 4 ,000 Medium 2,500 Tall 1,500 S S S Direct materials Direct labor Setting up production Processing orders Handling materials Using machines Performing quality management Shipping Total costs S 4 ,000 S 2,500 S 1,500 References eBook & Resources Worksheet Learning Objective: 09-03 Compare and contrast plantwide and department allocation methods. Learning Objective: 09-06 Compare activity-based product costing to traditional department product costing methods
