Question

In: Accounting

Sheridan Publishing identified the following overhead activities, their respective costs, and their cost drivers to produce...

Sheridan Publishing identified the following overhead activities, their respective costs, and their cost drivers to produce the three types of textbooks the company publishes.

Type of Textbook
Activity (Cost) Cost Driver Deluxe Moderate Economy
Machine maintenance ($360,000) Number of machine hours 300 900 1,200
Setups ($640,000) Number of setups 30 15 5
Packing ($168,000) Number of cartons 15 35 55
Photo development ($680,000) Number of pictures 4,500 2,500 1,500

Deluxe textbooks are made with the finest-quality paper, six-color printing, and many photographs. Moderate texts are made with three colors and a few photographs spread throughout each chapter. Economy books are printed in black and white and include pictures only in chapter openings.


Required

  1. Sheridan currently allocates all overhead costs based on machine hours. The company produced the following number of books during the prior year:

Deluxe Moderate Economy
60,000 180,000 240,000

Determine the overhead cost per book for each book type.

  1. Determine the overhead cost per book, assuming that the volume-based allocation system described in Requirement a is replaced with an activity-based costing system.


(For all requirements, round your answers to 2 decimal places.)

Solutions

Expert Solution

1) Based on machine hours
total overhead cost
Machine maintenance 360,000
Setups 640,000
Packing 168,000
Photo Devlopment 680,000
total overhead cost 1,848,000
overhead rate = 1848000/(300+900+1200)
770
overhead cost per book
Deluxe Moderate Economy
overhead allocated
Deluxe 770*300 231000
Moderate 770*900 693000
Econmoy 770*1200 924000
total overhead allocated (a) 231000 693000 924000
books produced (b) 60,000 180,000 240,000
OH cost per book c=a/b 3.85 3.85 3.85
2) Based on ABC activity
activity rate total overhead
total cost activity rate per activity
Machine maintenance 360,000 2400 150 per machine hour
Setups 640,000 50 12800 per setup
Packing 168,000 105 1600 per cartons
Photo Devlopment 680,000 8500 80 per picture
total overhead cost 1,848,000
overhead allocation
Deluxe Moderate Economy
Machine maintenance 45000 135000 180000
Setups 384000 192000 64000
Packing 24000 56000 88000
Photo Devlopment 360000 200000 120000
total overhead allocated 813000 583000 452000
books produced 60,000 180,000 240,000
OH cost per book 13.55 3.24 1.88

ekkarill92 answered 1 year ago
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