Q 18-12: Spin Cycle Architecture uses three activity pools to apply overhead to its projects. Each activity has a cost driver used to allocate the overhead costs to the projects. The activities and related overhead costs are as follows: initial concept formation $40,000, design $300,000, and construction oversight $100,000. The cost drivers and expected use are as follows.

Activities	Cost Drivers	Expected Use of Cost Drivers Per Activity
Initial Concept Information	Number of Project Changes	20
Design	Square Feet	150000
Construction Oversight	Number of Months	100

(a) Compute the predetermined overhead rate for each activity.

(b) Classify each of these activities as unit-level, batch-level, product-level, or facility-level.

DI 18-2: Flynn Industries has three activity cost pools and two products. It expects to produce 3,000 units of Product BC113 and 1,500 of Product AD908. Having identified its activity cost pools and the cost drivers for each pool, Flynn accumulated the following data relative to those activity cost pools and cost drivers.

Annual Overhead Data

Activity Cost Pools	Cost Drivers	Estimated Overhead
Machine Setup	Setups	$16000
Machineing	Machine Hours	110000
Packaging	Orders	30000

Expected Use of Cost Drivers per Unit

Expected Use of Cost Drivers per Activity	Product BC113	Product AD908
40	25	15
5000	1000	4000
500	150	350

Using the above data, do the following:

(a)Prepare a schedule showing the computation of the activity-based overhead rate per cost driver.

(b) Prepare a schedule assigning each activity's overhead cost to the two products.

(c) Compute the overhead cost per unit for each product. (Round to nearest cent.)

(d) Comment on the comparative overhead cost per product.

E18-1: 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	$50000	$100000
Machine Hours	1000	100
Setup Hours	100	400

Total estimated overhead costs are $240,000. Overhead cost allocated to the machining activity cost pool is $140,000, and $100,000 is allocated to the machine setup activity cost pool.

Instructions

(a) Compute the overhead rate using the traditional (plantwide) approach.

(b) Compute the overhead rates using the activity-based costing approach.

(c) Determine the difference in allocation between the two approaches.