Waterways Continuing Problem 17

Direct labor or machine hours may not be the appropriate cost driver for overhead in all areas of manufacturing due to the complexities of many manufacturing processes. Many companies use activity-based costing (ABC) which uses multiple drivers (items that consume resources) rather than just one driver to apply overhead to their activities. With ABC, a company can use a cost driver that has a direct cause/effect relationship in its applied overhead costs. Waterways looked into ABC as a method of costing because of the variety of items it produces and the many different activities in which it is involved.

Using the following information, determine the overhead rates and the actual cost assigned for each of the activity cost pools in a possible ABC system for Waterways. (Round answers to 2 decimal places, e.g. 12.25.)

WATERWAYS CORPORATION Expected Use of Cost Activity Cost Estimated Drivers per Actual Use of overhead Activity Pools Cost Drivers Drivers Irrigation installation Labor cost $1,998,432 12,960 12,941 Machining (all machine use) Machine hours 1,670,400 33,408,000 33,409,000 30,636 Customer orders Number of orders 2,520 2,553 Design Cost per design 820 21,900 Number of sales calls Selling 350,400 22,100