Question

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Comparing ABC and Plantwide Overhead Cost Assignments The Sabroso Chocolate Company uses activity-based costing (ABC). The controller identified two activities and their budgeted costs: Setting up equipment $270,000 Other overhead $900,000 Setting up equipment is based on setup hours, and other overhead is based on oven hours. Sabroso produces two products, Fudge and Cookies. Information on each product is as follows: Fudge Cookies Units produced 5,000 25,000 Setup hours 4,000 1,000 Oven hours 1,000 5,000 Required: 1. Calculate the activity rate for (a) setting up equipment and (b) other overhead. a. Setting up equipment $ per setup hour b. Other overhead per oven hour 2. How much total overhead is assigned to Fudge using ABC? 3. What is the unit overhead assigned to Fudge using ABC? Round to the nearest cent. per unit 4. Now, ignoring the ABC results, calculate the plantwide overhead rate, based on oven hours. per oven hour 5. How much total overhead is assigned to Fudge using the plantwide overhead rate?

Answer 1

1. Calculate activity rate :

a. Setup equipment = 270000/5000 = 54 per setup hour

b. other overhead = 900000/6000 = 150 per oven hour

2. Total Overhead assigned to Fudge using ABC :

Total overhead = (4000*54+1000*150) = 366000

3. Unit overhead cost assigned = 366000/5000 = 73.2 per unit

4. Plantwide overhead rate = 1170000/6000 = 195 per oven hour

5.Total overhead assigned to fudge = 195*1000 = 195000