Question

Wellington Chocolate Company uses activity-based costing (ABC). The controller identified two activities and their budgeted costs:

Setting up equipment	$598,000
Other overheard	$6,400,000

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	10,400			2,600
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.
$ 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

1)
	Setting up equipment		(598,000/13,000)=		46	per setup hour
	Other overhead		(6,400,000/40,000)=		160	per oven hour
2)	total overhead assigned to Fudge
	Setting up Equipment		(46*10,400)		478400
	other overhead		(160*5000)=		800000
	total overhead assigned to Fudge				1278400
3)	unit overhead assigned to Fudge
	1,278,400/8,000
	159.8
4)	plantwide overhead rate
	(598000+6,400,000)/40,000
	174.95
5)	overhead assigned to Fudget
	174.95*5000
	874750
6a)	difference is due to different treatment of setup costs as under traditional method
	oven hours is used whereas under ABC setup hours is used to assign cost
	because of which overhead assigned is more under ABC as Fudge consumes more of
	set up hours
6b)	difference
	1,278,400 - 874,750
	403650	answer