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 materiale Direct labor Overhead (300% of direct labor cost) Total cost Quantity produced Average coat per ft. (rounded) Rounded Edge Squared Edge Total $ 9,500 $21,500 $ 31,000 6,100 12,000 18,100 18,300 36,000 54,900 $33,900 $69,500 $103,900 10, 400 ft. 14,100 ft $ 3.26 Glassworks's controller wishes to apply activity-based costing (ABC) to allocate the $54,300 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, 172 29,000 23,128 $59, 300 She has also collected the following information about the cost drivers for each category (cost pool) and the amount of each driver used by the two product lines. (Round activity rate and cost per unit answers to 2 decimal places.) Usage Overhead Cost Category (Activity Cost Pool) Supervision Depreciation of machinery Assembly line preparation Driver Direct labor cost ($) Machine hours Setups (number) Rounded Edge $6,100 200 hours 31 times Squared Edge $12,000 700 hours 93 times Total $18, 100 900 hours 124 timea Required: 1. Assign these three overhead cost pools to each of the two products using ABC Activity Overhead Cost Activity Drivers Supervision Direct labor cost Depreciation of machinery Machine hours Assembly line preparation Setups Activity Rate % Rounded edge Activity rate Activity driver incurred Overhead assigned % Supervision Depreciation of machinery Assembly line preparation Activity rate Activity driver incurred Overhead assigned Squared edge Components Supervision Depreciation of machinery Assembly line preparation % 2. Determine average cost per foot for each of the two products using ABC. Rounded edge Squared edge

Answer 1

Ans.1 Activity Supervision Depreciation of machinery Assembly line preparation Overhead cost (a) $2,172 $29,000 $23,128 Activity drivers (b) $18,100 Direct labor cost 900 Machine hours 124 Setups (number) Activity rate (a/b) 12.00% $32.22 $186.52 of Direct labor cost Per Machine hours Per Setup Rounded edge Activity rate (a/b) Supervision Depreciation of machinery Assembly line preparation TOTAL OVERHEAD ASSIGNED 12% $32.22 $186.52 of Direct labor cost Per Machine hours Per Setup Activity driver incurred $6,100 200 31 Overhead assigned $732 $6,444 $5,782 $12,958 Squared edge Activity rate (a/b) Supervision Depreciation of machinery Assembly line preparation TOTAL OVERHEAD ASSIGNED 12% $32.22 $186.52 of Direct labor cost Per Machine hours Per Setup Activity driver incurred $12,000 700 93 Overhead assigned $1,440 $22,556 $17,346 $41,342 Ans. 2 Direct materials Direct labor Overhead assigned Total manufacturing costs Quantity produced Average cost per foot Rounded edge $9,500 $6,100 $12,958 $28,558 10400 $2.75 Squared edge $21,500 $12,000 $41,342 $74,842 14100 $5.31

*Average cost per foot   =   Total manufacturing cost / Quantity produced
*Activity rate = Overhead cost / Activity drivers