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Altex Inc. manufactures two products: car wheels and truck wheels. To determine the amount of overhead to assign to each product line, the controller, Robert Hermann, has developed the following information. Car Truck Estimated wheels produced 35,000 9,000 Direct labor hours per wheel 3 Total estimated overhead costs for the two product lines are $657,200. Calculate overhead rate. (Round answer to 2 decimal places, e.g. 12.25.) Overhead rate per direct labor hour Compute the overhead cost assigned to the car wheels and truck wheels, assuming that direct labor hours is used to allocate overhead costs. Car wheels Truck wheels Hermann is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the truck wheels product line because of its complexity. He therefore develops the following three activity cost pools and related cost drivers to better understand these costs. Estimated Use of Estimated Overhead Activity Cost Pools Cost Drivers Costs Setting up machines 1,000 setups $186,000 Assembling 62,000 labor hours 248,000 Inspection 1,200 inspections 223,200 Compute the activity-based overhead rates for these three cost pools. Overhead Rates Setting up machines Assembling Inspection Compute the cost that is assigned to the car wheels and truck wheels product lines using an activity-based costing system, given the following information. Estimated Use of Cost Drivers per Product Car Truck Number of setups 200 800 Direct labor hours 35,000 27,000 Number of inspections 100 1,100 Car Wheels Truck Wheels Setting up machines $ Assembling $ Inspection Total cost assigned $*Waterways Problem 04 b-c (Part Level Submission) 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 Plant supervision Digging trenches Product design Janitorial Purchasing materials Machine maintenance Selling Machine setups Testing Molding Welding Packaging * (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 Expected Use of Cost Activity Cost Estimated Drivers per Actual Use of Pools Cost Drivers Overhead Activity Drivers Irrigation installation Labor cost $2,011,420 12,340 12,321 Machining (all machine use) Machine hours 1,732,600 34,652,000 34,653,000 Customer orders Number of orders 30,420 2,340 2,312 Shipping none (direct) N/A N/A traced directly Design Cost per design 579 Selling Number of sales calls 357,000 21,000 21,180 WATERWAYS CORPORATION Activity- Based Actual Activity Cost Overhead Cost Pools Rates Assigned Irrigation installation $ Machining (all machine use) Customer orders Design Selling*Exercise 4-1 (Video) Saddle Inc. has two types of handbags: standard and custom. The controller has decided to use a plantwide overhead rate based on direct labor costs. The president has heard of activity-based costing and wants to see how the results would differ if this system were used. Two activity cost pools were developed: machining and machine setup. Presented below is information related to the company's operations. Standard Custom Direct labor costs $50,000 $100,000 Machine hours 1,500 1,500 Setup hours 90 420 Total estimated overhead costs are $306,900. Overhead cost allocated to the machining activity cost pool is $210,000, and $96,900 is allocated to the machine setup activity cost pool. 12.25.) Compute the overhead rate using the traditional (plantwide) approach. (Round answer to 2 decimal places, e.g. Predetermined overhead rate % of direct labor cost Compute the overhead rates using the activity-based costing approach. Machining per machine hour Machine setup $ per setup hour Determine the difference in allocation between the two approaches. Traditional costing Standard Custom Activity-based costing Standard Custom