Single Plantwide Rate and Activity-Based Costing

Whirlpool Corporation conducted an 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

20

22

66

100

RefrigeratorMedium Volume

320

20

147

1,600

RefrigeratorHigh Volume

1,000

15

220

5,000

Prior to conducting the study, the factory overhead allocation was based on a single machine hour rate. The machine hour rate was $100 per hour. After conducting the activity-based costing study, assume that three activities were used to allocate the factory overhead. The new activity rateinformation is assumed to be as follows:

Machining Activity

Setup Activity

Sales Order Processing Activity

Activity rate

$100

$150

$30

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	$	$	%