Smythe Crystal makes fine tableware in its Ireland factory. The following data a

Question

Smythe Crystal makes fine tableware in its Ireland factory. The following data are taken from its production plans for the year Determine the setup cost per unit for the wine glasses and for the commemorative vases if setup costs are assigned using a single plantwide overhead rate based on direct labor hours Determine setup costs per unit for the wine glasses and for the commemorative vases if the setup costs are assigned based on the number of setups. Which method is better for assigning costs to each product? Assignment based on the number of setups Assignment based on direct labor hours

Explanation / Answer

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Assignment based on direct labor hours is more appropriate method of assigning costs to each product, because it equates the per unit costs of both the products.

Product Activity driver Overhead rate Total overhead costs Units produced OH cost per unit Wine glasses Direct Labour hours 270000/285200 605000*270000/285200 =572756 208000 2.75 Vases 15200/285200 605000*15200/285200 =32244 13000 2.48

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