Waterways Problem 04 b-c

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
Activity Cost Pools		Cost Drivers		Estimated Overhead		Expected Use of Cost Drivers per Activity		Actual Use of Drivers
Irrigation installation		Labor cost		$1,857,000		12,380		12,364
Machining (all machine use)		Machine hours		1,691,400		33,828,000		33,829,000
Customer orders		Number of orders		34,580		2,660		2,625
Shipping		none (direct)		N/A		N/A		traced directly
Design		Cost per design		888		8		7
Selling		Number of sales calls		380,800		23,800		24,010

WATERWAYS CORPORATION
Activity Cost Pools		Activity- Based Overhead Rates		Actual Cost Assigned
Irrigation installation		$		$
Machining (all machine use)
Customer orders
Design
Selling

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How would you classify each of the following activities by levelunit level, batch level, product level, or facility level?

Testing of products (if all items are tested)		FacilityBatchUnitProduct
Testing of products (if all items are not tested)		ProductUnitBatchFacility
Designing new products		BatchFacilityProductUnit
Packaging		FacilityBatchProductUnit
Molding		UnitProductFacilityBatch
Assembling		UnitBatchProductFacility
Depreciation		ProductBatchFacilityUnit
Machine maintenance		ProductUnitFacilityBatch
Advertising		ProductUnitBatchFacility
Equipment setups		FacilityUnitBatchProduct
Electricity required to run equipment		ProductBatchFacilityUnit
Requisitioning materials		FacilityProductUnitBatch