Comparing ABC and Plantwide Overhead Cost Assignments

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

Setting up equipment	$396,000
Other overheard	$3,840,000

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

	Fudge			Cookies
Units produced	8,000			445,000
Setup hours	7,200			1,800
Oven hours	3,000			21,000

Required:

Round your answers to the nearest whole dollar, unless otherwise directed.

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

a. Setting up equipment	$44
b. Other overhead	$160

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. Round to the nearest cent. $______ per oven hour

5. How much total overhead is assigned to Fudge using the plantwide overhead rate? $_______ 6

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

different treatment of setup costs.

difference in the units produced.

difference in the sale prices of the products.

different oven temperatures required for baking fudge and cookies.

.

6b. What is the difference in total overhead assigned to fudge under the two methods?

$__________