Question

College Supply Company (CSC) makes three types of drinking glasses: short, medium, and tall. It presently applies overhead using a predetermined rate based on direct labor hours. A group of company employees recommended that CSC switch to activity-based costing and identified the following activities, cost drivers estimated costs, and estimated cost driver units for Year 5 for each activity center Activity Setting up production Processing orders Handling materials Using machines Providing quality management Packing and shipping Recommended Cost Driver Number of production runs Number of orders Pounds of materials Machine-hours Number of inspections Units shipped Estimated Cost $ 30.000 52.000 14.000 54.000 56.000 38,000 $244.000 Estimated Cost Driver Units 100 runs 200 orders 7 000 pounds 9.000 hours 40 inspections 19.000 units In addition, management estimated 2,000 direct labor-hours for year 5. Assume that the following cost driver volumes occurred in February. year 5. Tal Short 900 $3,000 300 Medium 400 $2,500 130 8 $2,500 110 130 Number of units produced Direct materials costs Direct labor-hours Number of orders Number of production runs Pounds of material Machine-hours Number of inspections Units shipped 300 500 800 300 400 200 300 Direct labor costs were $22 per hour. Required: a. Compute a predetermined overhead rate for year 5 for each cost driver recommended by the employees. Also compute a predetermined rate using direct labor-hours as the allocation base. (Round your answers to 2 decimal places.) Allocation Rate perrun per order Activity Setting up production Processing orders Handling materials Using machines Performing quality management Packing & shipping Direct labor hour rate perib per hour per insp. per unit per hour

Answer 1

Activity Estimated Cost Driver (B) Setting up Production Processing orders Handling materials Using machines Performing Quality management Packing and Shipping Direct Labor Hour Rate Estimated Cost (A) 30000 52000 14000 54000 56000 38000 244000 100 200 7000 9000 40 19000 2000 Allocation Rate (A/B) 300.00 Per Run 260.00 Per Order 2.00 Per lb 6.00 Per Hour 1400.00 Per Insp. 2.00 Per Unit 122.00 Per Hour 38 39 40 b Medium Direct Materials Direct Labor Overhead Total Costs Short 3000 2420 13420 18840 2500 2860 15860 21220 Tall 2500 2860 15860 21220 44

46 C Medium Tall Direct Materials Direct Labor Setting up Production Processing orders Handling materials Using machines Performing Quality management Packing and Shipping Total Costs Short 3000 2420 600 1820 600 3000 2800 1800 16040 2500 2860 900 2080 1600 1800 2800 800 15340 2500 2860 2700 1040 400 1800 2800 400 145001 57