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Sheridan Publishing identified the following overhead activities, their respective costs, and their cost drivers to produce...

Sheridan Publishing identified the following overhead activities, their respective costs, and their cost drivers to produce the three types of textbooks the company publishes.

Type of Textbook
Activity (Cost) Cost Driver Deluxe Moderate Economy
Machine maintenance ($310,000) Number of machine hours 250 750 1,000
Setups ($610,000) Number of setups 35 10 5
Packing ($162,000) Number of cartons 20 40 60
Photo development ($378,000) Number of pictures 4,000 1,000 1,000

Deluxe textbooks are made with the finest-quality paper, six-color printing, and many photographs. Moderate texts are made with three colors and a few photographs spread throughout each chapter. Economy books are printed in black and white and include pictures only in chapter openings.


Required

  1. Sheridan currently allocates all overhead costs based on machine hours. The company produced the following number of books during the prior year:

Deluxe Moderate Economy
50,000 150,000 200,000

Determine the overhead cost per book for each book type.

  1. Determine the overhead cost per book, assuming that the volume-based allocation system described in Requirement a is replaced with an activity-based costing system.


(For all requirements, round your answers to 2 decimal places.)

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Answer #1

a) Calculate overhead cost per book

Deluxe Moderate Economy
Overhead cost 1460000/400000*50000 = 182500 547500 730000
Books 50000 150000 200000
Overhead cost per books 3.65 3.65 3.65

b) Calculate overhead cost per books

Deluxe Moderate Economy
Machine maintenance 310000/2000*250 = 38750 116250 155000
Setups 610000/50*35 = 427000 122000 61000
Packing 162000/120*20 = 27000 54000 81000
Photo development 378000/6000*4000 = 252000 63000 63000
Total overhead 744750 355250 360000
Books 50000 150000 200000
Overhead cost per books 14.90 2.37 1.80
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