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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

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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 arca sample of possible cost pools for Waterways, Assembling Billing Digging trenches Janitorial Payroll Plant supervision Product design Purchasing materials Selling Testing Welding Machine maintenance Machine setups Molding Packaging 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, eg. 12.25.) WATERWAYS CORPORATION Estimated Overhead $ 2,094,400 Expected Use of Cost Drivers per Activity 12,320 1.560,100 31,202,000 Activity Cost Pools Irrigation installation Machining (all machine use) Customer orders Shipping Design Selling Cost Drivers Labor cost Machine hours Number of orders none (direct) Cost per design Number of sales calls Actual Use of Drivers 12,304 31.203,000 2,759 traced directly 7 33,480 2,790 N/A N/A 752 8 306,000 20,400 20,620 WATERWAYS CORPORATION Activity WATERWAYS CORPORATION Activity. Based Overhead Rates Activity Cost Pools Actual Cost Assigned Irrigation installation $ Machining (all machine use) Customer orders Design Selling How would you classify each of the following activities by level-unit level, batch levelproduct level, or facility level? Testing of products (if all items are tested) Testing of products (if all items are not tested) Designing new products Packaging Molding Assembling Depreciation Machine maintenance Advertising Fouinment setus Molding Assembling Depreciation Machine maintenance Advertising Equipment setups Electricity required to run equipment Requisitioning materials

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