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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 area sample of possible cost pools for Waterways. Assembling Billing Digging trenches Janitorial Machine maintenance Machine setups Molding Packaging Payroll Plant supervision Product design Purchasing materials Selling Testing Welding 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 Expected Use of Cost Activity Cost Estimated Drivers per Actual Use of Pools Cost Drivers Overhead Activity Drivers Irrigation installation Labor cost $2,031.480 12.540 12,519 Machining (all machine use) Machine hours 1,816,800 36,336,000 36,337.000 Customer orders Number of orders 32.500 2.500 2.464 Shipping none (direct) N/A N/A traced directly Design Cost per design 768 8 Selling Number of sales calls 312.000 20.800 20.980 7 WATERWAYS CORPORATION Activity- Based Overhead Rates Activity Cost Pools Irrigation installation Actual Cost Assigned $ $ $ Machining (all machine use) Customer orders Design Selling

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