Question

Single Plantwide Rate and Activity-Based Costing Whirlpool Corporation (WHR) conducted an activity-based costing study of its Evansville, Indiana, plant in order to identify its most profitable products. Assume that we select three representative refrigerators (out of 333): one low-, one medium-, and one high-volume refrigerator. Additionally, we assume the following activity-base information for each of the three refrigerators: TITI Number of Number of Number of Number of Sales Three Representative Refrigerators Machine Hours Setups Orders Units Refrigerator-Low Volume 24 14 38 160 Refrigerator-Medium Volume 225 13 88 1,500 Refrigerator-High Volume 900 9. 120 6,000 Prior to conducting the study, the factory overhead allocation was based on a single machine hour rate. The machine hour rate was $200 per hour. After conducting the activity- based costing study, assume that three activities were used to allocate the factory overhead. The new activity rate information is assumed to be as follows: Sales Order Setup Activity Machining Activity Processing Activity $160 Activity rate $240 $55 a. Complete the following table, using the single machine hour rate to determine the per-unit factory overhead for each refrigerator (Column A) and the three activity-based rates to determine the activity-based factory overhead per unit (Column B). Finally, compute the percent change in per-unit allocation from the single to activity-based rate methods (Column C). If required, round all per unit answers to the nearest cent. Round percents to one decimal place. For column C, use the minus sign to indicate a negative or decrease. Column A Column B Column C Single Rate ARC

Answer 1

per unit single rate allocation class product volume medium high particulars low Q4 २२७ 900 Number of machine hours (a) 200 200 800 machine how rate & per hour (6) us000 180ooo (C) 6ooo Total over heads (8) 4800 Number of units (d) 160 1500 30 30 30 single over head allocation per unit C/2)

allocation perunt ABC oven head Refrigerator - low volume set up activity role (i) set up cost = number of set up's x = 14 x $ 240 = $ 3360 a chrity rate (ii) machining activity = number of machine X honas a4 x $160 = $3840 - & order Number of sales sales older processios (11)) Sale ordes = 38 X $55 - $ 2090 Total overheads allocated in t(ii) tai) 3360+ 3840 +2090 39290 Number of units = 160 donits overheads per unita $9290 : ABC allocated 160 = 58.06

ABC allocation perunit Refrigerator - medium volume $ 240 = 3120 cost = 13 set ups x ci set up & 36000 225 machine &$160 (ii) machining Cost = houss 55 = 4840 (iii) Sales order processing cost - 88 Sale ordeaß x 8 allocated - 43960 Total over heads Number of units - 1500 units ABC allocated over heads per unit- 43960 1500 =$29.31 per un & 2160 $240 Refrigerator – high volume is set up cost = q getups x - luuooo x $160 = 9oo machine Cost - T hours rii machining 6600 il sales $55 order = 120 sales ordes processing cast 59760 Toral overheads allocaled = 6ooo unit Number of units 15276 6ooo ABC over heads allocated per unit $25.46 perunit

change in percentage allocation 93.53% Low = 58.06-30 5 -x100 = 30 -2-3%. medium = 29-31 - 30 _ x100 = 30 High = 25.46 - 30 x100 - -15-13% 30 columna columniB column-c product volume class single rate over head allocation perunit ABC overhead allocation per unit 7. change in allocation 58.06 30 93.53% low medium 29-3) -2.3% high 30 25.46 25.46 -15-13%

per 6 why is the traditional overhead rate machine hour under single nate is greater than ABC method? Ans: The machine hour rate is greater under the single state than under the ABC method because the total overheads are allocated by machine hours under single rate method. How ever only position of factory overheads is allocated under machine rate method under ABC costing. Remaining factory ovea heads is allocated by setups & sales order processing activities. Thus the numerator (overheads) for determining the machine hour rate under ABC costing is less than the numerator under the single machine hour rate

column c indicates that under ABC costing the low volume product has high per unit cost thon calculated the single rate method. In contrast under ABC costing the high volume oduct produc has a low per writ cost than calculated under the single rate method. ale