Question

Deoro Company has identified the following overhead activities, costs, and activity drivers for the coming year:

Activity	Expected Cost	Activity Driver	Activity Capacity
Setting up equipment	$480,850	Number of setups	590
Ordering costs	425,500	Number of orders	18,500
Machine costs	700,400	Machine hours	41,200
Receiving	298,800	Receiving hours	8,300

Deoro produces two models of dishwashers with the following expected prime costs and activity demands:

	Model A	Model B
Direct materials	$570,000	$821,000
Direct labor	$462,000	$472,000
Units completed	16,500	8,800
Direct labor hours	6,600	1,800
Number of setups	400	190
Number of orders	6,300	12,200
Machine hours	23,400	17,800
Receiving hours	2,300	6,000

The company's normal activity is 8,400 direct labor hours.

Required:

1. Determine the unit cost for each model using direct labor hours to apply overhead. Round intermediate calculations and final answers to nearest cent.

	Unit Cost
Model A	$
Model B	$

2. Determine the unit cost for each model using the four activity drivers. Round your answers to nearest cent.

	Unit Cost
Model A	$
Model B	$

Answer 1

Requirement 1

	Cost per Unit
Model A	$                  153.29
Model B	$                  193.33

Working

Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Total overheads	Number of Direct labor hour	$    19,05,550.00	8400	$          226.85	Per Direct labor hour

.

Cost assigned to Model A
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Setting up equipment	$        226.85	6,600.00	$     14,97,217.86

.

Cost assigned to Model B
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Setting up equipment	$        226.85	1800	$      4,08,332.14

.

Traditional Costing
	Model A	Model B
Direct material	$        5,70,000.00	$         8,21,000.00
Direct labor	$        4,62,000.00	$         4,72,000.00
Overheads	$      14,97,217.86	$         4,08,332.14
Total Cost per unit	$      25,29,217.86	$       17,01,332.14
Total Units	16500	$               8,800.00
Cost per Unit	$                  153.29	$                   193.33

Requirement 2

	Cost per Unit
Model A	$                  120.21
Model B	$                  255.35

Working

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Setting up equipment	Number of setup	$     4,80,850.00	590	$          815.00	Per setup
Ordering costs	Number of order	$     4,25,500.00	18500	$             23.00	Per order
Machine Costs	Number of machine hour	$     7,00,400.00	41200	$             17.00	Per machine hour
Receiving	Number of receiving hour	$     2,98,800.00	8300	$             36.00	Per receiving hour

.

Cost assigned to Model A
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Setting up equipment	$        815.00	400.00	$      3,26,000.00
Ordering costs	$           23.00	6,300.00	$      1,44,900.00
Machine Costs	$           17.00	23,400.00	$      3,97,800.00
Receiving	$           36.00	2,300.00	$ 82,800.00
Total Overheads assigned			$      9,51,500.00

.

Cost assigned to Model B
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Setting up equipment	$        815.00	190	$      1,54,850.00
Ordering costs	$           23.00	12200	$      2,80,600.00
Machine Costs	$           17.00	17800	$      3,02,600.00
Receiving	$           36.00	6000	$      2,16,000.00
Total Overheads assigned			$      9,54,050.00

.

ABC Costing
	Model A	Model B
Direct material	$        5,70,000.00	$         8,21,000.00
Direct labor	$        4,62,000.00	$         4,72,000.00
Overheads	$        9,51,500.00	$         9,54,050.00
Total Cost	$      19,83,500.00	$       22,47,050.00
Total Units	16500	$               8,800.00
Cost per Unit	$                  120.21	$                   255.35