Question

Single Plantwide Rate and Activity-Based Costing Whirlpool Corporation conducted an activity-based costing study of its Evansville, Indiana, plant in order to identify its most profitable products. Assume that we select three representative refrigerators (out of 333): one low-, one medium, and one high-volume refrigerator. Additionally, we assume the following activity-base information for each of the three refrigerators: Three Representative Number of Number of Number of Number of Refrigerators Machine Hours Setups Sales Orders Units Refrigerator-Low Volume 40 20 60 200 Refrigerator Medium Volume 340 19 1,700 Refrigerator-High Volume 1,010 13 200 5,050 Prior to conducting the study, the factory overhead allocation was based on a single machine hour rate. The machine hour rate was $200 per hour. After conducting the activity based costing study, assume that three activities were used to allocate the factory overhead. The new activity rate information is assumed to be as follows: Sales Order Machining Activity Setup Activity Processing Activity Activity rate $190 $300 $70 a. Complete the following table, using the single machine hour rate to determine the per unit factory overhead for each refrigerator (Column A) and the three activity-based rates to determine the activity-based factory overhead per unit (Column B). Finally, compute the percent change in per-unit allocation from the single to activity based rate methods (Column C) If required, round all per unit answers to the nearest cent. Round percents to one decimal place. For column C, use the minus sign to indicate a negative or decrease. Column Column B Column C Single Rate Overhead Allocation ABC Overhead Allocation Percent Change in

Answer 1

А B C D E F 1 2 Product Volume Class 3 4 Single Rate Overhead Allocation Total $8,000.00 $68,000.00 $2,02,000.00 Single Rate Overhead Allocation Per unit $40.00 $40.00 $40.00 ABC Overhead Allocation Total $17,800.00 $79,610.00 $2,09,800.00 ABC Overhead Allocation Per unit $89.00 $46.83 $41.54 Percent Change in Allocation 122.50% 17.07% 3.86% 5 5 6 Low Medium High (D5-B5)/B5 (D6-B6)/B6 (D7-B7)/B7 7 D 00 9 10 Working 11 12 ABC Costing 190 300 70 sales order processing activity 4200 machining activity 7600 13 Set up activity 6000 Total 17800 20 60 40 64600 340 5700 9310 14 low 15 16 medium 17 18 high 19 79610 19 133 191900 3900 209800 14000 200 1010 13 20

Solution Direct labor hours Machine hours Whole Milk 190240 190157 Skim Milk 139670 130676 Cream 114385 123467 Working Direct labor hours Plantwide factory overhead rate Plantwide factory overhead rate Plantwide factory overhead rate Factory Overhead cost/Direct Labor hour 444300/1845 240.81 Machine Hour Plantwide factory overhead rate Plantwide factory overhead rate Plantwide factory overhead rate Factory Overhead cost/Machine hour 444300/4930 90.12 Direct labor hours Total Direct Labor Hours Blending Packing Department Department 610 180 390 190 300 175 Plantwide factory Factory Product overhead rate Overhead cost 240.81 190240 240.81 139670 240.81 114385 790 Whole milk Skim milk Cream 580 475 Machine Hour Machine Hour Blending Packing Department Department 830 1280 670 780 530 840 Plantwide factory overhead rate 90.12 Factory Product Overhead cost 190157 130676 Total 2110 1450 1370 Whole milk Skim milk Cream 90.12 90.12 123467