Swartz Publishing identified the following overhead activities, their respective costs, and their cost drivers to produce the three types of textbooks the company publishes.

Deluxe textbooks are made with the finest-quality paper, six-color printing, and many photographs. Moderate texts are made with three colors and a few photographs spread throughout each chapter. Economy books are printed in black and white and include pictures only in chapter openings.
Required
a. Swartz currently allocates all overhead costs based on machine hours. The company produced the following number of books during the prior year.

Determine the overhead cost per book for each book type.
b. Determine the overhead cost per book, assuming that the volume-based allocation system described in Requirement α is replaced with an activity-based costing system.
c. Explain why the per-unit overhead costs determined in Requirements a and b differ.

Transcribed Image Text:

Type of Textbook Deluxe Modorate Economy Activity (Cost) Cost Driver Machine maintenance ($240,000) Setups (S420,000) Packing (S108,000) Photo development (S336,000) Number of machine hours Number of setups Number of cartons Number of pictures 250 30 10 4,000 750 15 30 2,000 1,000 50 1,000