Question

1. 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	$2,160,000

   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  .

   6b. What is the difference in total overhead assigned to fudge under the two methods?

   $

Answer 1

Ans.No	Particulars	Amount $		Remarks
1	Setting up equipment	$                   54.00	$ per setup hour	(270,000/5000)
	Other overhead	$                150.00	$ per oven hour	(2,160,000/(1800+12,600))
2	total overhead is assigned to Fudge using ABC	$
	Setting up equipment	$    216,000.00		(54*4,000)
	Other overhead	$    270,000.00		(150*1,800)
	total overhead is assigned to Fudge using ABC	$    486,000.00
3	unit overhead assigned to Fudge using ABC	$                   60.75	$per unit	(486,000/8,000)
4	plantwide overhead rate, based on oven hours	$                168.75	$ per oven hour	(270,000+2,160,000)/(18,00+12,600)
5	total overhead is assigned to Fudge using the plantwide overhead rate	$    303,750.00		(168.75*1,800)
6a	Because in abc cost allocation cost is allocated based on their respective setting up hour
	and oven hours where as in non abc cost is allocated on overall average of company.
	As fudge has higher hours compared to other ,so hiher allocated in ABC System
6b	difference in total overhead assigned to fudge under the two methods	$    182,250.00		(486,000-303,750)