Question

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.
  

	Rounded Edge				Squared Edge					Total
Direct materials		$	9,600			$	21,400		$	31,000
Direct labor			6,000				11,800			17,800
Overhead (300% of direct labor cost)			18,000				35,400			53,400
Total cost		$	33,600			$	68,600		$	102,200
Quantity produced			10,400	ft.			14,200	ft.
Average cost per ft. (rounded)		$	3.23			$	4.83

  
Glassworks's controller wishes to apply activity-based costing (ABC) to allocate the $53,400 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)	Cost
Supervision		$	2,136
Depreciation of machinery			28,520
Assembly line preparation			22,744
Total overhead		$	53,400

  
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)	Driver	Rounded Edge			Squared Edge			Total
Supervision	Direct labor cost ($)	$	6,000		$	11,800		$	17,800
Depreciation of machinery	Machine hours		200	hours		700	hours		900	hours
Assembly line preparation	Setups (number)		31	times		94	times		125	times

1. Assign these three overhead cost pools to each of the two products using ABC. Activity Overhead Cost Activity Drivers Activity Rate Supervision Direct labor cost % Depreciation of machinery Machine hours Assembly line preparation Setups Rounded edge Activity rate Activity driver incurred Overhead assigned Supervision % 0 Depreciation of machinery 0 Assembly line preparation 0 Squared edge Activity rate Activity driver incurred Overhead assigned Components Supervision % 0 Depreciation of machinery 0 Assembly line preparation 0 2. Determine average cost per foot for each of the two products using ABC. Rounded edge Squared edge

Answer 1

1. Assign these three overhead cost pools to each of the two products using ABC.
Activity	Overhead Cost	Divided by	Activity Drivers		Activity Rate
Supervision	2,136	/	$        17,800	Direct labor cost	12.00%
Depreciation of machinery	28,520	/	900	Machine hours	31.69
Assembly line preparation	22,744	/	125	Setups	181.95
Rounded edge	Activity rate		Multiply:		Activity driver incurred		Overhead assigned
Supervision	12.00%		x		$        6,000	Direct labor cost	$              720
Depreciation of machinery	31.69		x		200	Machine hours	$          6,338
Assembly line preparation	181.95		x		31	Setups	$          5,640
Total overhead cost assigned to Rounded edge							$        12,698
Squared edge	Activity rate		Multiply:		Activity driver incurred		Overhead assigned
Supervision	12.00%		x		$     11,800	Direct labor cost	$          1,416
Depreciation of machinery	31.69		x		700	Machine hours	$        22,183
Assembly line preparation	181.95		x		94	Setups	$        17,103
Total overhead cost assigned to Rounded edge							$        40,702
2. Determine average cost per foot for each of the two products using ABC.
			Rounded edge	Squared edge
Direct materials			$          9,600	$     21,400
Direct labor			$          6,000	$     11,800
Overhead assigned			$        12,698	$     40,702
Total cost			$        28,298	$     73,902
Divided by: Quantity produced			10,400	14,200
Average cost per foot (rounded)			$             2.72	$          5.20