Direct labor or machine hours may not be the appropriate cost driver for overhead in all areas of manufacturing due to the complexities of many manufacturing processes. Many companies use activity-based costing (ABC) which uses multiple drivers (items that consume resources) rather than just one driver to apply overhead to their activities. With ABC, a company can use a cost driver that has a direct cause/effect relationship in its applied overhead costs.

Waterways looked into ABC as a method of costing because of the variety of items it produces and the many different activities in which it is involved.The activities listed below area sample of possible cost pools for Waterways.

AssemblingPayrollBillingPlant supervisionDigging trenchesProduct designJanitorialPurchasing materialsMachine maintenanceSellingMachine setupsTestingMoldingWeldingPackaging

(b)

Using the following information, determine the overhead rates and the actual cost assigned for each of the activity cost pools in a possible ABC system for Waterways.(Round answers to 2 decimal places, e.g. 12.25.)

WATERWAYS CORPORATION

Activity Cost Pools Cost Drivers Estimated OverheadExpected Use of CostDrivers perActivityActual Use of Drivers

Irrigation installationLabor cost $2,002,200 14,100 14,077

Machining (all machine use)Machine hours1,805,500 36,110,000 36,111,000

Customer ordersNumber of orders 29,770 2,290 2,252

Shippingnone (direct)N/AN/Atraced directlyDesignCost per design 896 8 7

SellingNumber of sales calls 361,500 24,100 24,310

WATERWAYS CORPORATION

Activity Cost PoolsActivity-Base OverheadRates Actual Cost Assigned

Irrigation installation $ $

Machining (all machine use)

Customer orders

Design

Selling

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