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. The activities listed below area sample of possible cost pools for Waterways.

Assembling		Payroll
Billing		Plant supervision
Digging trenches		Product design
Janitorial		Purchasing materials
Machine maintenance		Selling
Machine setups		Testing
Molding		Welding
Packaging

 

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 Drivers per Activity Cost Pools Estimated Overhead Actual Use of Cost Drivers Activity Drivers Irrigation installation Labor cost $1,914,030 12,510 12,493 Machining (all machine use) Machine hours 1,830,900 36,618,000 36,619,000 Customer orders Number of orders 30,030 2,310 2,283 Shipping none (direct) N/A N/A traced directly Design Cost per design 792 8 7 Selling Number of sales calls 340,800 21,300 21,500 WATERWAYS CORPORATION Activity- Based Actual Cost Activity Cost Pools Overhead Rates Assigned Irrigation installation $ $ Machining (all machine use) Customer orders Design Selling