In: Accounting
Comparing ABC and Plantwide Overhead Cost Assignments
Wellington Chocolate Company uses activity-based costing (ABC). The controller identified two activities and their budgeted costs:
Setting up equipment | $270,000 |
Other overheard | $2,304,000 |
Setting up equipment
is based on setup hours, and other overhead is based on oven
hours.
Wellington produces two products, Fudge and Cookies. Information on
each product is as follows:
Fudge | Cookies | ||||
Units produced | 8,000 | 445,000 | |||
Setup hours | 4,000 | 1,000 | |||
Oven hours | 1,800 | 12,600 |
Required:
Round your answers to the nearest whole dollar, unless otherwise directed.
1. Calculate the activity rate for (a) setting up equipment and (b) other overhead.
a. Setting up equipment | $ per setup hour |
b. Other overhead | $ per oven hour |
2.
How much total overhead is assigned to Fudge using ABC?
$
3.
What is the unit overhead assigned to Fudge using ABC? Round to the
nearest cent.
$per unit
4.
Now, ignoring the ABC results, calculate the plantwide overhead
rate, based on oven hours. Round to the nearest cent.
$ per oven hour
5.
How much total overhead is assigned to Fudge using the plantwide
overhead rate?
$
6a. The difference in the total overhead assigned to Fudge is different under the ABC system and non–ABC system because different treatment of setup costs. .
6b. What is the difference in total overhead assigned to fudge under the two methods?
$