Question

Waterways Problem 04 b-c Direct labor or machine hours may not be the appropriate cost driver for overhead in all areas of manufacturing due to the complexities of many manufacturing processes. Many companies use activity-based costing (ABC) which uses multiple drivers (items that consume resources) rather than just one driver to apply overhead to their activities. With ABC, a company can use a cost driver that has a direct cause/effect relationship in its applied overhead costs. Waterways looked into ABC as a method of costing because of the variety of items it produces and the many different activities in which it is involved. The activities listed below area sample of possible cost pools for Waterways. Assembling Payroll Billing Plant supervision Digging trenches Product design Janitorial Purchasing materials Machine maintenance Selling Machine setups Testing Molding Welding Packaging

Using the following information, determine the overhead rates and the actual cost assigned for each of the activity cost pools in a possible ABC system for Waterways. (Round answers to 2 decimal places, e.g. 12.25.) WATERWAYS CORPORATION Activity Cost Pools Cost Drivers Estimated Overhead Expected Use of Cost Drivers per Activity Actual Use of Drivers Irrigation installation Labor cost $1,857,000 12,380 12,364 Machining (all machine use) Machine hours 1,691,400 33,828,000 33,829,000 Customer orders Number of orders 34,580 2,660 2,625 Shipping none (direct) N/A N/A traced directly Design Cost per design 888 8 7 Selling Number of sales calls 380,800 23,800 24,010 WATERWAYS CORPORATION Activity Cost Pools Activity- Based Overhead Rates Actual Cost Assigned Irrigation installation $ $ Machining (all machine use) Customer orders Design Selling LINK TO TEXT LINK TO TEXT

How would you classify each of the following activities by level—unit level, batch level, product level, or facility level? Testing of products (if all items are tested) FacilityBatchUnitProduct Testing of products (if all items are not tested) ProductUnitBatchFacility Designing new products BatchFacilityProductUnit Packaging FacilityBatchProductUnit Molding UnitProductFacilityBatch Assembling UnitBatchProductFacility Depreciation ProductBatchFacilityUnit Machine maintenance ProductUnitFacilityBatch Advertising ProductUnitBatchFacility Equipment setups FacilityUnitBatchProduct Electricity required to run equipment ProductBatchFacilityUnit Requisitioning materials FacilityProductUnitBatch

Answer 1

WATERWAYS CORPORATION
Activity Cost	Cost Drivers	Estimated	Expected	Actual Use of
Pools		Overhead	Use of Cost	Drivers
			Drivers per
			Activity
Irrigation installation	Labor cost	$1,857,000	12,380	12,364
Machining (all machine use)	Machine hours	1,691,400	33,828,000	33,829,000
Customer orders	Number of orders	34,580	2,660	2,625
Design	Cost per design	888	8	7
Selling	Number of sales calls	380,800	23,800	24,010
WATERWAYS CORPORATION
Activity Cost	Activity-	Actual
Pools	Based	Cost
	Overhead	Assigned
	Rates
Irrigation installation	$150.00	$1,854,600.00
Machining (all machine use)	$0.05	$1,691,450.00
Customer orders	$13.00	$34,125.00
Design	$111.00	$777.00
Selling	$16.00	$384,160.00

Testing of products (if all items are tested)	Batch
Testing of products (if all items are not tested)	Batch
Designing new products	Product
Packaging	Batch
Molding	Unit
Assembling	Unit
Depreciation	Unit
Machine maintenance	Facility
Advertising	Facility
Equipment setups	Batch
Electricity required to run equipment	Facility
Requisitioning materials	Batch

WATERWAYS CORPORATION
Activity Cost	Cost Drivers	Estimated	Expected	Actual Use of
Pools		Overhead	Use of Cost	Drivers
			Drivers per
			Activity
Irrigation installation	Labor cost	1857000	12380	12364
Machining (all machine use)	Machine hours	1691400	33828000	33829000
Customer orders	Number of orders	34580	2660	2625
Design	Cost per design	888	8	7
Selling	Number of sales calls	380800	23800	24010
WATERWAYS CORPORATION
Activity Cost	Activity-	Actual
Pools	Based	Cost
	Overhead	Assigned
	Rates
Irrigation installation	=C7/D7	=B18*E7
Machining (all machine use)	=C8/D8	=B19*E8
Customer orders	=C9/D9	=B20*E9
Design	=C10/D10	=B21*E10
Selling	=C11/D11	=B22*E11