Question

Question 7

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 materials Direct labor Overhead (300% of direct labor cost) Total cost Quantity produced Average cost per ft. (rounded) Rounded Edge $ 9,400 6,200 18,600 $34,200 10,600 ft. $ 3.23 Squared Edge Total $21,700 $ 31,100 11,900 18,100 35,700 54,300 $69,300 $ 103,500 14,100 ft. $ 4.91 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. Cost Overhead Cost Category (Activity Cost Pool) Supervision Depreciation of machinery Assembly line preparation Total overhead $ 2,172 29,000 23,128 $ 54,300

Answer 1

Answer:

1.)  Assign three overhead cost pools to each of the two products using ABC

Activity	Overhead Cost $	Activity Drivers		Activity Rate
Supervision	2,172	18,100	Direct labour	12%	2,172/18,100
Depreciation of Machinery	29,000	1,000	Machine hours	29	29,000/1,000
Assembly line preparation	23,128	123	Setup	188.03	23,128/123

Rounded edge	Activity Rate	Activity Driver Incurred	Overhead Assigned
Supervision	12%	Direct labour	6,200	744
Depreciation of Machinery	29	Machine hours	300	8,700
Assembly line preparation	188.03	Setup	30	5,641
Total	15,085

Squared edge	Activity Rate	Activity Driver Incurred	Overhead Assigned
Supervision	12%	Direct labour	11,900	1,428
Depreciation of Machinery	29	Machine hours	700	20,300
Assembly line preparation	188.03	Setup	93	17,487
Total	39,215

2.) Computation of Average Cost per foot

	Rounded Edge	Squared Edge
Direct Material	9,400	21,700
Direct Labor	6,200	11,900
Overhead assigned	15,085	39,215
Total Cost	30,685	72,815
Quantity Produced	10,600	14,100
Average Cost per feet	$2.89	$5.16

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