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K9H20 manufactures three types of dog bowls: toy, midi and big. Currently, the company assigns all indirect costs using a predetermined overhead rate based on direct-labor hours. Their amazing controller suggested the company switch to an activity-based costing model. She prepared the following costs estimates for upcoming year. Estimated costs Activity Processing orders Cost Driver # of orders Estimated cost driver activity 200 orders $ 44,000 # of production Machine Setup runs Handling materials materials Utilities and maintenance machine hours Quality control inspections Packing # of units 187,000 294,000 228,000 59,500 100,000 $ 912,500 110 run: 140,000 pounds 12,000 hours 50 inspections 400,000 units In addition, the production manager estimates 7,300 direct labor hours for the upcoming year. Assume that the following cost driver volumes were reported in January: Big 6,000 18,000 Midi Toy 9,000 15,000 22,000 $ 18,500 450 640 $ $ 430 13 00 7 Number of units produced Direct materials costs Direct labor hours Number of orders Production runs Pounds of material Machine hours Inspections Units shipped 3 2 5 13,000 6,000 2,500 580 120 80 3 2 4 57,000 26,000 9,000 Actual labor costs were $15 per hour Quantity of driver Allocation rate Cost per per per 35 (a) Activity 36 Processing orders 37 Machine Setup 38 Handling materials 39 Utilities and maintenance 40 Quality control 41 Packing 42 per per per 43 44 B. Determine the overhead rate using direct labor hours. 45 46 Single overhead rate: 47 Overhead 48 Direct labor hours per dih 49 50 C. Compute the cost of production for January for each dog bowl using the single 51 overhead rate based on direct labor hours 52 53 Big Midi Toy 54 Direct materials 55 Direct labor 56 Manuf OH 57 58 D. Compute the cost of production for January for each dog bowl using activity-based 50 costing 1 62 Big Midi Toy 63 Direct materials 64 Direct labor 5 Processing orders 56 Machine Setup 67 Handling materials 58 Utilities and maintenance 69 Quality control F0 Packing *1 -2 Compare to cost in C. -3 Difference Comment on the differences of the costs of each type of dog bowl under using a single overhead rate versus ABC. Why are they so different? Identify if ABC 5 E. results in a higher or lower cost. Then, determine why. 26 +7 1) Big bowl: 18 9 BO 31 32 2) Midi bowl 33 34 85 86 37 3) Toy bowl 88 19 80