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help thanks Direct labor or machine hours may not be the appropriate cost driver for overhead in all areas of manufacturing due to the complexities
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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 Payroll Billing Digging trenches Plant supervision Product design Purchasing materials Janitorial Machine maintenance Selling Machine setups Testing Molding Welding 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, e.g. 12.25.) WATERWAYS CORPORATION Activity Cost Pools Estimated Use of Cost Drivers per Activity Estimated Overhead $2,222,550 Use of Cost Drivers 13,470 13,448 Irrigation installation Machining (all machine use) Customer orders 1,514,050 30,281,000 30,282,000 Cost Drivers Labor cost Machine hours Number of orders none (direct) Cost per design Number of sales calls 34.970 2.690 2,657 Shipping N/A N/A traced directly Design 882 9 8 Selling 318,000 21.200 21,390 WATERWAYS CORPORATION Activity: Based OH WATERWAYS CORPORATION Activity- Based Overhead Rates Activity Cost Pools OH Cost Assigned $ $ Irrigation installation Machining (all machine use) Customer orders Design Selling Step by Step Solution
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