Question

22. Hayward Industries manufactures dining chairs and tables. The following information is available: Dining Chairs 200 250 Total Cost C $48,000 $72,000 Tables 600 Machine setups Inspections Labor hours 470 000 2,600 2,400 Hayward is considering switching from one overhead rate based on labor hours to activity-based costing. Instructions costs Perform the following analyses for these two components of overhead: Compute total machine setups and inspection costs assigned to each product, using a single overhead rate. b. Compute total machine setups and inspection costs assigned to each product, using activity-based costing. a. .ty dollers 23. A list of possible cost drivers is presented below: uct nes. The saleCodethe product lines is: Standard, 60% D Number of subassemblies Code Engineering hours B Setups C Machine hours A nd Вохes F Orders Instructions point For each of the following activity cost pools, select the most appropriate cost driver: Cost Pool Code 1. Machine setup 2. Ordering and receiving 3. Packaging and shipping 4. Engineering design 5. Machining 6. Assembly

Answer 1

Solution

Hayward Industries

1a. Compute total machine setups and inspection costs assigned to each product, using a single overhead rate:

Single overhead rate = total overhead cost/direct labor hours

Total overhead cost = $48,000 + $72,000 = $120,000

Direct labor hours = 2,600 + 2,400 = 5,000

Single overhead rate = $120,000/5,000 = $24 per DLH

Assigned costs to Dining Chairs –

Assigned overhead cost = single overhead rate x direct labor hours used

Direct labor hours used = 2,600

Assigned overhead cost = $24 x 2,600 = $62,400

Assigned costs to Tables –

Assigned overhead cost = single overhead rate x direct labor hours used

Direct labor hours used = 2,400

Assigned overhead cost = $24 x 2,400 = $57,600

1b. Computation of total machine setups and inspection costs assigned to each product using activity based costing:

Dining Chairs	Activity Rate	Activity Usage	Assigned Cost (activity rate x activity usage)
Machine Setups	$60 per machine setup	200 setups	$12,000
Inspections	$100 per inspection	250 inspections	$25,000
Total			$37,000
Tables
Machine Setups	$60 per machine setup	600	$36,000
Inspection	$100 per inspection	470	$47,000
Total			$83,000

Computation of activity rates:

Activity	Total Cost	Usage	Activity rate = total cost/usage
Machine setups	$48,000	800 setups	$60 per setup	(48,000/800 = 60)
Inspections	$72,000	720 inspections	$100 per inspection	(72,000/720 = 100)

Note:

1. Total machine setups = 200 + 600 = 800 machine setups
2. Total inspections = 250 + 470 = 720 inspections

Part 2:

Select the appropriate cost driver –

Code	Cost Pool
C	1. Machine Setup
F	2. Ordering and Receiving
E	3. Packaging and Shipping
A	4. Engineering Design
C	5. Machining
D	6. Assembly