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Comparing ABC and Plantwide Overhead Cost Assignments Wellington Chocolate Company uses activity-based costing (ABC). The controller...

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 $322,000
Other overheard $5,800,000

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 5,600 1,400
Oven hours 5,000 35,000

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?

$

Solutions

Expert Solution

Req 1.
Activity rate:
Activity   OH cost Drivers Activity rate
Setting up 322000 7000 46 per setup hour
Other overheads 5800000 40000 145 per oven hours
Req 2.
Overheads allocated to Fudge:
Activity Rate Driver used Oh cost allocated
Setting up 46 5600 257600
Other overheads 145 5000 725000
Total Overheads 982600
Req 3.
Overheads allocated under ABC 982600
Divide: Total units produced 8000
Oh cost per unit 122.83
Req 4.
Plantwide Oh rate per Oven hour
Total Overheads (322000+5800000) 6122000
Divide: Total Oven hours 40000
Oh rate per oven hours 153.05
Req 5.
Oh allocated to Fudge
Oven hours used 5000
Multiply: Oh rate per oven hour 153.05
Oh allocated to Fudge 765250
Req 6-a
Yes, there is a difference
Req 6-b
Overheads of Fudge as per ABC 982600
Overheads of Fudge as per plantwide rate 765250
Difference in oh cost 217350

ekkarill92 answered 3 years ago
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