Question

Deoro Company has identified the following overhead activities, costs, and activity drivers for the coming year:

Activity	Expected Cost	Activity Driver	Activity Capacity
Setting up equipment	$501,760	Number of setups	640
Ordering costs	384,000	Number of orders	19,200
Machine costs	913,000	Machine hours	41,500
Receiving	323,700	Receiving hours	8,300

Deoro produces two models of dishwashers with the following expected prime costs and activity demands:

	Model A	Model B
Direct materials	$647,000	$773,000
Direct labor	$486,000	$451,000
Units completed	16,200	7,500
Direct labor hours	5,100	1,800
Number of setups	450	190
Number of orders	6,500	12,700
Machine hours	23,100	18,400
Receiving hours	2,000	6,300

The company's normal activity is 6,900 direct labor hours.

Required:

1. Determine the unit cost for each model using direct labor hours to apply overhead. Round intermediate calculations and final answers to nearest cent.

	Unit Cost
Model A	$
Model B	$

2. Determine the unit cost for each model using the four activity drivers. Round your answers to nearest cent.

	Unit Cost
Model A	$
Model B	$

3. Which method produces the more accurate cost assignment?

Answer 1

Solution:

a. Overhead cost = 21,22,460

Setup	5,01,760
ordering	3,84,000
machining	9,13,000
Receiving	3,23,700
Total	21,22,460

Overhead rate = 2122460 / 6900 = 307.6

Total overhead cost:

Model A = 307.6 X 5100 = 1,568,760

Model B = 307.6 X 1800 = 553,680

1.

	Model A	Model B
Direct materials	6,47,000	7,73,000
Direct labour	4,86,000	4,51,000
Overhead	1568760	553680
Total cost	27,01,760	17,77,680
Units	16,200	7,500
Unit cost	166.78	237.02

2.

	Model A	Model B
Direct materials	6,47,000	7,73,000
Direct labour	4,86,000	4,51,000
Overhead:
Setups	352800	148960
Ordering	130000	254000
Machining	508200	404800
Receiving	78000	245700
Total cost	22,02,000	22,77,460
Units	16,200	7,500
Unit cost	135.93	303.66

3. Four activity drivers produces the most accurate cost assignment.

9 Copy of HomeworkLib2 - Microsoft Excel (Product Activation Failed) X File Home Insert Page Layout Formulas Data Review View X * Cut AutoSum Calibri 11 A A z Wrap Text General Normal Bad Good La Copy Fill Paste B 1 U- *Merge & Center GP, % Calculation Conditional Format as Neutral Formatting Table Check Cell Insert Delete Format Format Painter Clear Sort & Find & Filter - Select Editing Clipboard Font Alignment Number Styles Cells N51 fac A F. G 1 J K L M N O P Q R S T 36 37 B Activity Setting equipment Ordering costs Machine costs Receiving C D Expected cost Activity driver 5,01,760 Number of setups 3,84,000 Number of orders 9,13,000 Machine hours 3,23,700 Receiving hours E Activity capacity 640 19,200 41,500 8,300 38 39 H 1 Overhead cost Setup ordering machining Receiving Total 2 Overhead rate 5,01,760 3,84,000 9,13,000 3,23,700 21,22,460 307.6 40 41 42 43 44 45 Model A Model B 6,47,000 4,86,000 16,200 5,100 450 6,500 23,100 2,000 Direct materials Direct labour Units completed Direct labour hours Number of setups Number of orders Machine hours Receiving hours 3 Total overhead cost Model A 1568760 Model B 553680 7,73,000 4,51,000 7,500 1,800 190 12,700 18,400 6,300 4 Unit cost Direct materials Direct labour Overhead Total cost Units Unit cost Model A Model B 6,47,000 7,73,000 4,86,000 4,51,000 1568760 553680 27,01,760 17,77,680 16,200 7,500 166.78 237.02 O Direct labour hours 6,900 b. 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 KO Ready Model A Model B Direct materials 6,47,000 7,73,000 Direct labour 4,86,000 4,51,000 Overhead: Setups 352800 148960 Ordering 130000 254000 Machining 508200 404800 Receiving 78000 245700 Total cost 22,02,000 22,77,460 Units 16,200 7,500 Unit cost 135.93 303.66 Sheet144 Sheet145 Sheet146 Sheet147 Sheet148 Sheet149 Sheet150 Sheet151 Sheet152 Sheet153 Sheet154 III W 100% 1 Type here to search O I 61% » ENG 00:10 17-09-2020 1

Copy of HomeworkLib2 - Microsoft Excel (Product Activation Failed) X File Home Insert Page Layout Formulas Data Review View X * Cut AutoSum Calibri 11 A A z Wrap Text General Normal Bad Good Да Copy" Fill- Paste B 1 U- *Merge & Center Calculation Conditional Format as Neutral Formatting Table Check Cell Insert Delete Format Format Painter Clear Sort & Find & Filter - Select Editing Clipboard Font Alignment Number Styles Cells K46 fox D F G H J K L M N E Activity capacity 640 1 36 37 38 39 A B Activity Setting equipment Ordering costs Machine costs Receiving с Expected cost 501760 384000 913000 323700 Activity driver Number of setups Number of orders Machine hours Receiving hours =C37 =C38 19200 Overhead cost Setup ordering machining Receiving Total Overhead rate 41500 8300 =C39 40 41 =C40 =SUM(137:140) =ROUND(141/C52,2) Model A Model B 2 647000 773000 451000 7500 486000 16200 3 Total overhead cost Model A Model B 142*C46 =142*D46 1800 Direct materials Direct labour Units completed Direct labour hours Number of setups Number of orders Machine hours Receiving hours 190 5100 450 6500 23100 2000 4 12700 18400 6300 Unit cost Direct materials Direct labour Overhead Total cost Units Unit cost Model A Model B =C43 =D43 =C44 =D44 =145 =146 =SUM(149:151) =SUM(149:351) =C45 =D45 =ROUND(152/153,2)=ROUND(352/353,2) Direct labour hours 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 6900 b. Model A =C43 =C44 Model B =D43 =D44 Direct materials Direct labour Overhead: Setups Ordering Machining Receiving Total cost Units Unit cost =C37*C47/(C47+D47) =C37*D47/(C47+D47) =C38*C48/(C48+D48) =C38*D48/(C48+D48) =C39*C49/(C49+D49) =C39*D49/(C49+D49) =C40*C50/(C50+D50) =C40*D50/(C50+D50 =157+158+163+162+161 =357+358+J63+J62+J6 =C45 =D45 =ROUND(164/165,2) =ROUND(364/365,2) Sheet144 Sheet145 Sheet146 Sheet147 Sheet148 Sheet149 Sheet150 Sheet151 Sheet152 Sheet153 Sheet154 Ready W 100% 1 Type here to search O I 61% » ENG 00:10 17-09-2020 1