Question

Single Plantwide Rate and Activity-Based Costing Whirlpool Corporation conducted an activity-based costing study of its Evansvile, 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: Number of Number of Number of Number of Three Representative Sales Orders Units Refrigerators Machine Hours Setups Refrigerator-Low Volume 20 19 100 1.950 Refrigerator-Medium volume 390 18 127 Refrigerator-High Volume 190 4,500 900 13 Prior to conducting the study, the factory overhead allocation was based on a single machine hour rate. The machine hour rate was $100 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 $100 $150 $30 a. Complete the folowing table, using the single machine hour rate to determine the per-unit factory overhead for each refrigerator (Column A) end the three activity-based rates to determine the activity-based factory overhead per unit (Column B). Finaly, compute the percent change in per-unt allocation from the single to activity-based rate methods (Column C). If required, round all per unit answers to the nearest cent. Round parcents to one decimal place. For column C, use the minus sign to indicate a negative or decrease. Column A Column B Column C

Answer 1

Page ① Date: _ _Page No.: * Single machine hour rate = $100 per hour. Refrigerator Number Machine hour rate Overheed (B) x (c) number of units factor Overchard per unit machine hours Low volume Medium volume High volume 20 390 900 100 100 100 2000 39000 goooo 100 1950 4500 $20 $20 $20. & Activity and costing Refrigerator - Low volume Machine hours = 20 Machining activity rate = $100 overhead = 20x10o = $2000 Setup . Setups - 19 activity rak = $150 Overhead = Igx15o = $2850 - sales Sales order = 57 order processing actinity rate = $30 overhead i 57830 = $1710

Page ① Date: Page No. rotal overhead = $2000 + $2850 + $1710 = $6560 overhead per unit = $6560/100 = $65.60 per unit - Refrigerator - Medium volume Machine hours = 390 Machining activity rate = $100 Overhead : 390x 100 = $39.000 Setups = 18 Schup activity rate = $150 overhead = 18x150 = $2700 sales sales order = 127 de order processing activity rate = $30 overhead = 127430= $3810 Total overhead = 39000 + 2700 + 3810 - $45510 Overhead per unit = $45510/1950 = 23.34 perunt -

- Page ② Date: Page No.: Refrigeration - High volume - Machine houn - goo Machining activity rate = $100 - Overhead = 300x100 - $90000 Sehups - 13 Schup activity rare = $150 overhead = 13x150 = $1950 - sales sales order = 190 order proceniny activity rate= $30 overhead = 190x30 = $5700 Total overhead a Overhead per unit = goooo + 1950 +5700 - $97650 97650/4500 = $21.70 per unt. Percentage change in per unit allocation - Refrigerator low volume & 65.60-20 = 228% 20 Refrigeration medium volume = 23.34-20 = 16.7% 20 high volume = 21.70-20 = 8.5% - Refrigeration 20