Waterway Visuals produces tablets and books. Total overhead costs traditionally
ID: 2520798 • Letter: W
Question
Waterway Visuals produces tablets and books. Total overhead costs traditionally have been allocated on the basis of direct labor hours. After implementing activity-based costing, managers determined the following cost pools and cost drivers. They also decided that general costs should no longer be allocated to products.Activity Pool Department Costs Cost Driver Binding $265,374 Number of units Printing 811,854 Machine hours Product design 201,618 Change orders General 608,994 None Total overhead costs $1,887,840
Other information is as follows:
Tablets Books Units 62,500 20,300 Direct materials cost per unit $2.83 $10.09 Direct labor cost per unit $4.10 $7.84 Direct labor hours 25,400 16,000 Machine hours 126,000 120,000 Change orders 1,200 3,000
Explanation / Answer
Activity Pool Department Cost Cost Driver Binding 265374 No of Units Printing 811854 Machine Hours Product Design 201618 Change Orders General 608994 None Total OH Costs 1887840 Tablets Books Relevant Total Units 62500 20300 82800 Direct materials cost per unit 2.83 10.09 Direct labor cost per unit 4.1 7.84 Direct labor hours 25400 16000 41400 Machine hours 126000 120000 246000 Change orders 1200 3000 4200 Tablets Books Allocated Overhead(DLH*45.60) 11,58,240 7,29,600 OH Per Unit(Allocted OH/Units) 18.53 35.94 1 Predetermined OH Rate: (Basis on Direct Labor Hours) Overheads 1887840 Total Direct Labor Hours 41400 Per DLH Rate 45.60 2 Unit Product Costs: Tablets Books Direct materials cost per unit 2.83 10.09 Direct labor cost per unit 4.10 7.84 Overheads 18.53 35.94 Unit Product Costs 25.46 53.87 3 ABC Rates: Activity Pool Department Cost Cost Driver Total Driver Cost per Driver Binding 265374 No of Units 82800 3.21 Printing 811854 Machine Hours 246000 3.30 Product Design 201618 Change Orders 4200 48.00 Activity Pool ABC Rates Binding 3.21 Per Unit Printing 3.30 Per MH Product Design 48.00 Per Change Order 4 Unit Product Costs: Tablets Books Direct materials cost per unit 2.83 10.09 Direct labor cost per unit 4.10 7.84 Overheads** 10.78 29.81 Unit Product Costs 17.71 47.74 Overheads** Tablets Books Allocation: Binding 2,00,312.50 65,061.50 (Activity* Per Driver Activity Rate) Printing 4,15,827.66 3,96,026.34 (Activity* Per Driver Activity Rate) Product Design 57,605.14 1,44,012.86 (Activity* Per Driver Activity Rate) Total Allocation 6,73,745.30 6,05,100.70 12,78,846 Units 62500 20300 Per Unit OH 10.78 29.81 5 Traditional ABC Difference Total Allocated OH 18,87,840 12,78,846 6,08,994
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