Question

Comparing ABC and Plantwide Overhead Cost Assignments

Wellington Chocolate Company uses activity-based costing (ABC). The controller identified two activities and their budgeted costs:

Setting up equipment	$754,000
Other overheard	$2,912,000

Setting up equipment is based on setup hours, and other overhead is based on oven hours.
Wellington produces two products, Fudge and Cookies. Information on each product is as follows:

	Fudge			Cookies
Units produced	8,000			445,000
Setup hours	10,400			2,600
Oven hours	2,600			18,200

Required:

Round your answers to the nearest whole dollar, unless otherwise directed.

1. Calculate the activity rate for (a) setting up equipment and (b) other overhead.

a. Setting up equipment	$ per setup hour
b. Other overhead	$ per oven hour

2. How much total overhead is assigned to Fudge using ABC?
$

3. What is the unit overhead assigned to Fudge using ABC? Round to the nearest cent.
$per unit

4. Now, ignoring the ABC results, calculate the plantwide overhead rate, based on oven hours.
$ per oven hour

5. How much total overhead is assigned to Fudge using the plantwide overhead rate?
$

6a. The difference in the total overhead assigned to Fudge is different under the ABC system and non–ABC system because different treatment of setup costs. .

6b. What is the difference in total overhead assigned to fudge under the two methods?

$

Answer 1

Requirement 1 :
Activity	Overhead	Driver	Expected Activity	Activity Rate
Setting up equipment	$     754,000.00	Set Up Hours	13000	$     58.00
Other overhead	$   2,912,000.00	Oven Hours	20800	$   140.00
Requirement 2 :
Total Overhead assigned to fudge using ABC
Particulars	Amount
Setting up equipment (10400*58)	$     603,200.00
Other Overhead (2600*140)	$     364,000.00
Total	$ 967,200.00
Requirement 3 :
Unit Overhead assigned to fudge using ABC
Particulars	Amount
Setting up equipment (10400*58)	$     603,200.00
Other Overhead (2600*140)	$     364,000.00
Total	$ 967,200.00
Number of units	13000
Per unit cost	$             74.40
Requirement 4 :
Plantwide overhead rate
Total Overhead	$   3,666,000.00
Oven Hours	20800
Plant wide overhead rate	$           176.25
Requirement 5 :
Total Overhead assigned to fudge using plantwide overhead rate
Particulars	Amount
Oven hours	2600
Plant wide overhead rate	$           176.25
Total Overhead	$ 458,250.00
Requirement 6 :
Difference in overhead assigned
Overhead using ABC	$     967,200.00
Overhead using plantwide overhead rate	$     458,250.00
Difference in overhead assigned	$ 508,950.00