Willow Company produces lawn mowers. One of its plants produces two versions of mowers: a basic model and a deluxe model. The deluxe model has a sturdier frame, a higher horsepower engine, a wider blade, and mulching capability. At the beginning of the year, the following data were prepared for this plant:

Additionally, the following overhead activity costs are reported:
Maintaining equipment .......$114,000
Engineering support ...........120,000
Materials handling ............?
Setting up equipment ...........96,000
Purchasing materials .........60,000
Receiving goods ............40,000
Paying suppliers ............30,000
Providing space .............20,000
Total ...............$ ?
Facility-level costs are allocated in proportion to machine hours (provides a measure of time the facility is used by each product). Materials handling uses three inputs: two forklifts, gasoline to operate the forklift, and three operators. The three operators are paid a salary of $40,000 each. The operators spend 25 percent of their time on the receiving activity and 75 percent on moving goods (materials handling). Gasoline costs $3 per move. Depreciation amounts to $6,000 per forklift per year.

Required:
Round answers to two decimal places.
1. Calculate the cost of the materials handling activity. Label the cost assignments as driver tracing or direct tracing. Identify the resource drivers.
2. Calculate the cost per unit for each product by using direct labor hours to assign all overhead costs.
3. Calculate activity rates, and assign costs to each product. Calculate a unit cost for each product, and compare these costs with those calculated in Requirement 2.
4. Calculate consumption ratios for each activity.
5. Explain how the consumption ratios calculated in Requirement 4 can be used to reduce the number of rates. Calculate the rates that would apply under thisapproach.

Transcribed Image Text:

Basic Model Deluxe Model Expected quantity Selling price 40,000 $180 $80 20,000 $360 $160 5,000 10,000 Deluxe Model 4,500 500 4,800 200 3,000 500 Machine hours Direct labor hours Engineering support (hours) Receiving (orders processed) Materials handling (number of moves) Purchasing (number of requisitions) Maintenance (hours used) Paying suppliers (invoices processed) Setting up equipment (number of setups 10,000 Basic Model 1,500 250 1,200 100 1,000 250 16