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 6,100 18,300 $ 33,800 10,600 ft. $ 3.19 Squared Edge Total $ 21,700 $ 31,100 11,900 18,000 35,700 54,000 $ 69,300 $ 103, 100 14,200 ft. $ 4.88 Glassworks's controller wishes to apply activity-based costing (ABC) to allocate the $54,000 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 $ 2,160 28,840 23,000 $ 54,000 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 $6,100 400 hours 31 times Squared Edge $11,900 600 hours 95 times Total $18,000 1,000 hours 126 times Required: 1. Assign these three overhead cost pools to each of the two products using ABC.

Answer 1

1.

Activity	Overhead Cost	Activity Drivers		Activity rate
Supervision	$2,160	$18,000	Direct labor	12%	Percentage
Depreciation of machinery	$28,840	1000	Machine Hours	$28.84	Per MH
Assembly line preparation	$23,000	126	Setups	$182.54	Per Setups

Rounded Edge	Activity Rate		Activity Driver Incurred		Overhead Assigned
Supervision	12%	Direct Labor Cost	$6,100		$732
Depreciation of machinery	$28.84	Machine Hours	400	Hours	$11,536
Assembly line preparation	$182.54	Setups	31	Times	$5,658.74
					$17,926.74

Squared Edge	Activity Rate		Activity Driver Incurred		Overhead Assigned
Supervision	12%	Direct Labor Cost	$11,900		$1,428
Depreciation of machinery	$28.84	Machine Hours	600	Hours	$17,304
Assembly line preparation	$182.54	Setups	95	Times	$17,341.30
					$36,073.30

____________________________________________________________________________________________

2.

Compute Average Cost per foot as follows:

	Rounded Edge	Square Edge
Direct Materials	$9,400	$21,700
Direct Labor	$6,100	$11,900
Assigned Overhead as per ABC system	$17,926.74	$36,073.30
Total Cost	$33,426.74	$69,673.30
Quantity produced	10600 ft.	14200 ft.
Average cost per ft.	$3.15	$4.90