Comparing ABC and Plantwide Overhead Cost Assignments

Castle Dale Company uses activity-based costing (ABC). The controller identified two activities and their budgeted costs:

Setting up equipment	$864,000
Other overhead	$2,880,000

Setting up equipment is based on setup hours, and other overhead is based on oven hours. Castle Dale produces two products, Fudge and Cookies. Information on each product is as follows:

	Fudge	Cookies
Batches produced	16,000	890,000
Setup hours	12,800	3,200
Oven hours	3,200	16,000

Required:

1. Calculate the activity rate for (a) setting up equipment and (b) other overhead.

	Activity rate
a. Setting up equipment	____________ per setup hour
b. Other overhead	____________ per oven hour

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

3. What is the unit overhead assigned to Fudge using ABC? Round to the nearest cent.

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

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

6a. The difference in the total overhead assigned to Fudge is different under the ABC system and nonABC system because _________

1. Different treatment of setup cost.
2. Difference in the Batches produced.
3. Difference in the sale prices of the products
4. Different oven temperatures required for baking fudge and cookies.

6b. What is the difference in total overhead assigned to fudge under the two methods? Do not round intermediate calculations.