Question

Multiple Versus Single Overhead Rates, Activity Drivers

Deoro Company has identified the following overhead activities, costs, and activity drivers for the coming year:

Activity	Expected Cost	Activity Driver	Activity Capacity
Setting up equipment	$466,260	Number of setups	570
Ordering costs	369,600	Number of orders	17,600
Machine costs	702,100	Machine hours	41,300
Receiving	414,000	Receiving hours	9,200

Deoro produces two models of dishwashers with the following expected prime costs and activity demands:

	Model A	Model B
Direct materials	$574,000	$790,000
Direct labor	$469,000	$463,000
Units completed	15,000	8,300
Direct labor hours	6,400	1,900
Number of setups	380	190
Number of orders	6,200	11,400
Machine hours	24,300	17,000
Receiving hours	2,300	6,900

The company's normal activity is 8,300 direct labor hours.

Required:

1. Determine the unit cost for each model using direct labor hours to apply overhead. Round intermediate calculations and final answers to nearest cent.

	Unit Cost
Model A	$
Model B	$

2. Determine the unit cost for each model using the four activity drivers. Round your answers to nearest cent.

	Unit Cost
Model A	$
Model B	$

3. Which method produces the more accurate cost assignment?

Answer 1

Requiremet 1
Plantwide overhead rate
Total Overhead cost	1951960	235.18	Per direct labor hr
Direct labor Hours	8300
Product	DL Hours	Plantwide OH rate	Total Overhead cost	Direct Material	Direct Labor	Total cost	Units Produced	OH cost Per unit
Model A	6400	235.18	1505125.78	574000	469000	2548125.78	15000	100.34
Model B	1900	235.18	446834.22	790000	463000	1699834.22	8300	53.84
Requiremet 2
						Model A		Model B
Activity	Overhead cost	Activity Drivers		Activity rate		Actiivty driver incurred	Overhead assigned	Actiivty driver incurred	Overhead assigned
Setting up Equipment	466260	570	Setups	34.06	Per Setup	380	13,624	190	1,36,240
Ordering costs	369600	17600	Orders	346.15	Per order	6200	11,077	11400	8,308
Machine costs	702100	41300	Machine Hours	10.25	Per Machine Hr.	24300	4,715	17000	42,435
Receiving	414000	9200	Receiving hours	390.91	Per receiving hr.	2300	3,909	6900	11,727
					Total Overhead cost		33,325		1,98,710
					Direct material		5,74,000		7,90,000
					Direct Labor		4,69,000		463000
							10,76,325		10,76,325
					Units Produced		15000		8300
							2.22		23.94
Requiremet 3
Activity bases costing method produces the more accurate cost assignment.