The Oscuro Chocolate Company uses activity-based costing (ABC). The controller i

Question

The Oscuro Chocolate Company uses activity-based costing (ABC). The controller identified two activities and their budgeted costs:

Setting Up Equipment $108,000

Other Overhead$360,000

Setting up equipment is based on set up hours, and other overhead is based on oven hours. Oscuro produces two products, Fudge and Cookies. Information on each product is as follows:

Fudge Cookies

Units produced 2,000 10,000

Set Up hours1,600400

Oven hours 400 2,000

1. Calculagte the activity rate for (a) setting up equipment, (b) other overhead

2. How much total overhead is assigned to Fudge using ABC?

3. What is the unit overhead assigned to Fudge using ABC?

4. Now, ignoring the ABC resutls, claculate the plantwide ovehead rate, based on oven hours

5. How much total overhead is assigned to Fudge using the plantwide overhead rate?

6. Explain why the total overhead assigned to Fudge is different under ABC system (i.e. using the acgtivity rates) than under the non-ABC system (i.e. using the plantwide rate)

Explanation / Answer

1. Calculate the activity rate for (a) setting up equipment = $108,000 ÷ 2,000 = $54 per hour (b) other overhead = $360,000 ÷ 2,400 = $150 per hour 2. How much total overhead is assigned to Fudge using ABC? Fudge Units produced 2,000 Set Up overhead $86,400 (1,600 x $54) Oven Overhead $60,000 (400 x $150) Total Overhead $146,400 3. What is the unit overhead assigned to Fudge using ABC? Units produced 2,000 Total Overhead $146,400 Per Unit cost $73.20 4. Now, ignoring the ABC results, calculate the plant wide overhead rate, based on oven hours (a) setting up equipment = $108,000 ÷ 2,400 = $45 per hour (b) other overhead = $360,000 ÷ 2,400 = $150 per hour 5. How much total overhead is assigned to Fudge using the plant wide overhead rate? Fudge Units produced 2,000 Set Up overhead $72,000 (1,600 x $45) Oven Overhead $60,000 (400 x $150) Total Overhead $132,000 6. Explain why the total overhead assigned to Fudge is different under ABC system (i.e. using the activity rates) than under the non-ABC system (i.e. using the plant wide rate) The difference is because the predetermined rate is based on setup hours and on oven hours, whereas in second case it is based on oven hours.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.