Question

Smythe Co. makes furniture. The following data are taken from its production plans for the year Direct labor costa Hazardous waste disposal coata $5,900, 000 615,000 Chairs 202,000 units 268,000 DLH 300 pounds Tablea 16,000 units 15, 400 DLH 500 pounda Expected production Direct labor hours required Hazardous waste disposed Required: 1. Determine the hazardous waste disposal cost per unit for chairs and for tables if costs are assigned using a single plantwide overhead rate based on direct labor hours. OH S per direct labor hour OH Cost per unit Units Produced Total Overhead Cost Activity Driver Product Chairs Tables 2. Determine hazardous waste disposal costs per unit for chairs and for tables if costs are assigned based on the number of pounds disposed of. OH Cost ner unit Units Produced Total Overhead Cost OH S Der nound Activity Driver Product

Answer 1

1. Determine the hazardous waste disposal cost per unit for chairs and for tables if costs are assigned using single plantwide overhead rate based on direct labor hours.
Overhead costs	$615,000	$2.17 [$615,000 / 283,400]	per direct labor hour
Direct labor hours         [268,000 + 15,400]	283,400
Product	Activity Driver (a)	OH $ per direct labor hour (b)	Total Overhead Cost (c = a x b)	Units Produced (d)	OH Cost per unit (c / d)
Chairs	268,000	$2.17	$581,560	202,000	$2.88
Table	15,400	$2.17	$33,418	16,000	$2.09
2. Determine hazardous waste disposal costs per unit for chairs and for tables if costs are assigned based on the number of pounds disposed of
Overhead costs	$615,000	$768.75 [$615,000 / 800]	per pound
Number of pounds [300 + 500]	800
Product	Activity Driver (a)	OH $ per pound (b)	Total Overhead Cost (c = a x b)	Units Produced (d)	OH Cost per unit (c / d)
Chairs	300	$768.75	$230,625	202,000	$1.14
Table	500	$768.75	$384,375	16,000	$24.02

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3. Which method is better for assigning costs to each product?

Answer: Assignment based on the number of pounds

Reason: Since the waste disposal costs are more likely to be driven by the number of pounds disposed of versus the direct labor hours incurred.