Question

Exercise 17-14 Activity-based costing LO P3 A2 Glassworks Inc. produces two types of glass shelving, rounded edge and squared edge, on the same production line. For the current period, the company reports the following data. Direct materials Direct labor Overhead (300% of direct labor cost) Total cost Quantity produced Average cost per ft. (rounded) Rounded Edge $ 9,400 6,200 18,600 $34,200 10,400 ft. $ 3.29 Squared Edge Total $21,700 $ 31,100 12,000 18,200 36,000 54,600 $69,700 $103,900 14,100 ft. $ 4.94 Glassworks's controller wishes to apply activity-based costing (ABC) to allocate the $54,600 of overhead costs incurred by the two product lines to see whether cost per foot would change markedly from that reported above. She has collected the following information. Overhead Cost Category (Activity Cost Pool) Supervision Depreciation of machinery Assembly line preparation Total overhead Cost $ 2,184 29,160 23, 256 $54,600 She has also collected the following information about the cost drivers for each category (cost pool) and the amount of each driver used by the two product lines. (Round activity rate and cost per unit answers to 2 decimal places.) Usage Overhead Cost Category (Activity Cost Pool) Supervision Depreciation of machinery Assembly line preparation Driver Direct labor cost ($) Machine hours Setups (number) Rounded Edge Squared Edge $6,200 $12,000 300 hours 700 hours 31 times 95 times Total $18, 200 1,000 hours 126 times Required:

Answer 1

Ans.1	Activity	Overhead cost (a)	Activity drivers (b)		Activity rate (a / b)
	Supervision	$2,184	$18,200	Direct labor cost	12.00%	of Direct labor cost
	Depreciation of machinery	$29,160	1000	Machine hours	$29.16	Per Machine hours
	Assembly line preparation	$23,256	126	Setups (number)	$184.57	Per Setup
	Rounded edge	Activity rate (a / b)		Activity driver	Overhead
				incurred	assigned
	Supervision	12%	of Direct labor cost	$6,200	$744
	Depreciation of machinery	$29.16	Per Machine hours	300	$8,748
	Assembly line preparation	$184.57	Per Setup	31	$5,722
	TOTAL OVERHEAD ASSIGNED				$15,214
	Squared edge	Activity rate (a / b)		Activity driver	Overhead
				incurred	assigned
	Supervision	12%	of Direct labor cost	$12,000	$1,440
	Depreciation of machinery	$29.16	Per Machine hours	700	$20,412
	Assembly line preparation	$184.57	Per Setup	95	$17,534
	TOTAL OVERHEAD ASSIGNED				$39,386
Ans. 2		Rounded edge	Squared edge
	Direct materials	$9,400	$21,700
	Direct labor	$6,200	$12,000
	Overhead assigned	$15,214	$39,386
	Total manufacturing costs	$30,814	$73,086
	Quantity produced	10400	14100
	Average cost per foot	$2.96	$5.18
	Average cost per foot   =   Total manufacturing cost / Quantity produced
	*Activity rate = Overhead cost / Activity drivers