Question

Sheridan Publishing identified the following overhead activities, their respective costs, and their cost drivers to produce the three types of textbooks the company publishes. Activity (Cost) Machine maintenance ($330,000) Setups ($630,000) Packing ($166,000) Photo development ($574,000) Cost Driver Number of machine hours Number of setups Number of cartons Number of pictures Type of Textbook Deluxe Moderate Economy 250 750 1,000 35 20 15 10 30 60 4,400 2,400 1,400 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. Sheridan currently allocates all overhead costs based on machine hours. The company produced the following number of books during the prior year: Deluxe 50,000 Moderate 150,000 Economy 200,000 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 a is replaced with an activity-based costing system.

Answer 1

Answer:

	Deluxe	Moderate	Economy
a. Cost per book (volume-based allocation)	$ 4.25	$ 4.25	$ 4.25
b. Cost per book (activity-based allocation)	$ 13.62	$ 3.48	$ 2.49

Working notes:

a.

B D Amount Total costs: Maintenance Set up Packing Photo department Total costs $ 330,000 $630,000 $ 166,000 $574,000 $ 1,700,000 Total machine hours = 250+750+1,000 = 2,000 Allocation of total cost No. of books Cost per book Deluxe $ 212,500 50,000 $ 4.25 Moderate $637,500 150,000 $4.25 Economy $ 850,000 200,000 $4.25

Amount Total costs: Maintenance Set up Packing Photo department Total costs 330000 630000 166000 574000 =SUM(C3:06) Total machine hours = 250+750+1,000 = 2,000 Allocation of total cost No. of books Cost per book Deluxe =1700000*250/2000 50000 =C12/C13 Moderate =1700000*750/2000 150000 =D12/013 Economy =1700000*1000/2000 200000 =E12/E13 15 16 Deluxe Moderate Economy 17 a. Cost per book (volume-b24.25 4.25 4.25

b.

D Co van WN Costs Maintenance Set up Packing Photo department Total costs No. of books Cost per book (activity-based allocation) Deluxe $41,250 $ 315,000 $ 16,600 $ 308,000 $ 680,850 50,000 $ 13.62 Moderate $ 123,750 $ 180,000 $ 49,800 $ 168,000 $ 521,550 150,000 $3.48 Economy $ 165,000 $135,000 $99,600 $ 98,000 $ 497,600 200,000 $ 2.49

в DE - Noo Costs Maintenance Set up Packing Photo department Total costs No. of books Cost per book (activity-based allocation) Deluxe =330000*250/2000 =630000*35/70 =166000*10/100 =574000*4400/8200 =SUM(C3:C6) 50000 =C7/08 Moderate =330000*750/2000 =630000*20/70 =166000*30/100 =574000*2400/8200 =SUM(D3:06) 150000 =D7/D8 Economy =330000*1000/2000 =630000*15/70 =166000*60/100 =574000*1400/8200 =SUM(E3:56) 200000 =E7/E8