Question

Smythe Co. makes furniture. The following data are taken from its production plans for the year. Direct labor costs $5,300,000 625,000 Hazardous waste disposal costs Chairs Tables 23,000 units 15,800 DLH 200 pounds 213,000 units 254,000 DLH 600 pounds Expected production Direct labor hours required Hazardous waste disposed Required:

Answer 1

1. Determine the hazardous waste disposal cost per unit for chairs and for tables if costs are assigned using single plantwide overhead rate based on direct labor hours.
Overhead costs                                                     (a)	$625,000	$2.32 (a / b)	per direct labor hour
Direct labor hours         [254,000 + 15,800]         (b)	269,800
Product	Activity Driver (a)	OH $ per direct labor hour (b)	Total Overhead Cost (c = a x b)	Units Produced (d)	OH Cost per unit (c / d)
Chairs	254,000	$2.32	$589,280	213,000	$2.77
Table	15,800	$2.32	$36,656	23,000	$1.59
2. Determine hazardous waste disposal costs per unit for chairs and for tables if costs are assigned based on the number of pounds disposed of
Overhead costs                                                     (a)	$625,000	$781.25 (a / b)	per pound
Number of pounds [600 + 200]                            (b)	800
Product	Activity Driver (a)	OH $ per pound (b)	Total Overhead Cost (c = a x b)	Units Produced (d)	OH Cost per unit (c / d)
Chairs	600	$781.25	$468,750	213,000	$2.20
Table	200	$781.25	$156,250	23,000	$6.79
3. Which method is better for assigning costs to each product?
Answer: Assignment based on the number of pounds
Reason: Since the waste disposal costs are more likely to be driven by the number of pounds disposed versus the direct labor hours incurred.