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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

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 $ $

%

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