Question
Single Plantwide Rate and Activity-Based Costing Whirlpool Corporation conducted an A measure of activity that is related to changes in cost. Used in analyzing and
Single Plantwide Rate and Activity-Based Costing
Whirlpool Corporation conducted an A measure of activity that is related to changes in cost. Used in analyzing and classifying cost behavior. Activity bases are also used in the denominator in calculating the predetermined factory overhead rate to assign overhead costs to cost objects.activity-based costing study of its Evansville, Indiana, plant in order to identify its most profitable products. Assume that we select three representative refrigerators (out of 333): one low-, one medium-, and one high-volume refrigerator. Additionally, we assume the following activity-base information for each of the three refrigerators:
Three Representative Refrigerators | Number of Machine Hours | Number of Setups | Number of Sales Orders | Number of Units | ||||
RefrigeratorLow Volume | 70 | 15 | 45 | 350 | ||||
RefrigeratorMedium Volume | 400 | 14 | 100 | 2,000 | ||||
RefrigeratorHigh Volume | 890 | 10 | 150 | 4,450 |
Prior to conducting the study, the factory overhead allocation was based on a single machine hour rate. The machine hour rate was $350 per hour. After conducting the activity-based costing study, assume that three activities were used to allocate the factory overhead. The new The cost of an activity per unit of activity base, determined by dividing the activity cost pool by the activity base.activity rate information is assumed to be as follows:
Machining Activity | Setup Activity | Sales Order Processing Activity | |||||
Activity rate | $340 | $530 | $120 |
Complete the following table, using the single machine hour rate to determine the per-unit factory overhead for each refrigerator (Column A) and the three activity-based rates to determine the activity-based factory overhead per unit (Column B). Finally, compute the percent change in per-unit allocation from the single to activity-based rate methods (Column C).
If required, round all per unit answers to the nearest cent. Round percents to one decimal place. For column C, use the minus sign to indicate a negative or decrease.
Column A | Column B | Column C | |
Product Volume Class | Single Rate Overhead Allocation Per Unit | ABC Overhead Allocation Per Unit | Percent Change in Allocation |
Low | $ | $ | % |
Medium | $ | $ | % |
High | $ | $ | % |
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