Question

Single Plantwide Rate and Activity-Based Costing

Whirlpool Corporation conducted an activity-based costing study of its Evansville, Indiana, plant in order to identify its most profitable products. Assume that we select three representative refrigerators (out of 333): one low-, one medium-, and one high-volume refrigerator. Additionally, we assume the following activity-base information for each of the three refrigerators:

Three Representative Refrigerators	Number of Machine Hours		Number of Setups		Number of Sales Orders		Number of Units
Refrigerator—Low Volume	120		17		51		600
Refrigerator—Medium Volume	350		16		113		1,750
Refrigerator—High Volume	1,050		11		170		5,250

Prior to conducting the study, the factory overhead allocation was based on a single machine hour rate. The machine hour rate was $600 per hour. After conducting the activity-based costing study, assume that three activities were used to allocate the factory overhead. The new activity rate information is assumed to be as follows:

	Machining Activity		Setup Activity		Sales Order Processing Activity
Activity rate	$580		$900		$200

a. Complete the following table, using the single machine hour rate to determine the per-unit factory overhead for each refrigerator (Column A) and the three activity-based rates to determine the activity-based factory overhead per unit (Column B). Finally, compute the percent change in per-unit allocation from the single to activity-based rate methods (Column C).

If required, round all per unit answers to the nearest cent. Round percents to one decimal place. For column C, use the minus sign to indicate a negative or decrease.

	Column A	Column B	Column C
Product Volume Class	Single Rate Overhead Allocation Per Unit	ABC Overhead Allocation Per Unit	Percent Change in Allocation
Low
Medium
High

Answer 1

Answer :-

Overhead based on single absorption rate of machine hours
Product volume class	Number of product	Machine hours	Overhead rate	Total Overheads	Cost per unit
Low	600	120	600	72,000	120
Medium	1,750	350	600	210,000	120
High	5,250	1,050	600	630,000	120
Overhead based on ABC Costing
Product volume class	Number of product	Machine hours	Number of setupts	Number of orders	Machining Cost	Setup Cost	Sales Order Cost	Total Overheads	Cost per unit
					(@580 per hour)	(@900 per setup)	(@200 pe order)
Low	600	120	17	51	69,600	15,300	10,200	95,100	158.50
Medium	1,750	350	16	113	203,000	14,400	22,600	240,000	137.14
High	5,250	1,050	11	170	609,000	9,900	34,000	652,900	124.36
Diffrential Cost
Product volume class	Cost as per Single rate	Cost as per ABC	Percent change in Allocation
	Per unit	Per unit
Low	120	158.50	32.10%
Medium	120	137.14	14.28%
High	120	124.63	3.86%