Question

Glassworks Inc. produces two types of glass shelving, rounded edge and squared edge, on the same production line. For the current period, the company reports the following data.
  

	Rounded Edge				Squared Edge					Total
Direct materials		$	9,600			$	21,800		$	31,400
Direct labor			6,100				11,800			17,900
Overhead (300% of direct labor cost)			18,300				35,400			53,700
Total cost		$	34,000			$	69,000		$	103,000
Quantity produced			10,400	ft.			14,200	ft.
Average cost per ft. (rounded)		$	3.27			$	4.86

  
Glassworks's controller wishes to apply activity-based costing (ABC) to allocate the $53,700 of overhead costs incurred by the two product lines to see whether cost per foot would change markedly from that reported above. She has collected the following information.

Overhead Cost Category (Activity Cost Pool)	Cost
Supervision		$	2,148
Depreciation of machinery			28,680
Assembly line preparation			22,872
Total overhead		$	53,700

  
She has also collected the following information about the cost drivers for each category (cost pool) and the amount of each driver used by the two product lines. (Round activity rate and cost per unit answers to 2 decimal places.)

		Usage
Overhead Cost Category (Activity Cost Pool)	Driver	Rounded Edge			Squared Edge			Total
Supervision	Direct labor cost ($)	$	6,100		$	11,800		$	17,900
Depreciation of machinery	Machine hours		400	hours		800	hours		1,200	hours
Assembly line preparation	Setups (number)		32	times		94	times		126	times

1. Assign these three overhead cost pools to each of the two products using ABC. Activity Overhead Cost Activity Drivers Activity Rate Supervision Direct labor cost % Depreciation of machinery Machine hours Assembly line preparation Setups Rounded edge Activity rate Activity driver incurred Overhead assigned Supervision % Depreciation of machinery Assembly line preparation Squared edge Activity rate Activity driver incurred Overhead assigned Components Supervision % Depreciation of machinery Assembly line preparation 2. Determine average cost per foot for each of the two products using ABC. Rounded edge Squared edge

Answer 1

ANS

1)

ACTIVITY	OVERHEAD COST	ACTIVITY DRIVERS	ACTIVITY RATE
SUPERVISION	$2148	$17900 DIRECT LABOR COST	12% OF DIRECT LABOR COST
DEPRECIATION OF MACHINERY	$28680	1200 HOURS	$23.9 PER MACHINE HOUR
ASSEMBLY LINE PREPARATION	$22872	126 TIMES	$181.52 PER SET UP

ROUNDED EDGE	ACTIVITY RATE	ACTIVITY DRIVER INCURRED	OVERHEAD ASSIGNED
SUPERVISION	12% OF DIRECT LABOR COST	$6100	$732
DEPRECIATION OF MACHINERY	$23.9 PER MACHINE HOUR	400	$9560
ASSEMBLY LINE PREPARATION	$181.52 PER SETUP	32	$5808.64

TOTAL OVERHEAD = $16100.64

SQUARED EDGE	ACTIVITY RATE	ACTIVITY DRIVER INCURRED	OVERHEAD ASSIGNED
SUPERVISION	12% OF DIRECT LABOR COST	$11800	$1416
DEPRECIATION OF MACHINERY	$23.9 PER MACHINE HOUR	800 HOURS	$19120
ASSEMBLY LINE PREPARATION	$181.52 PER SETUP	94 TIMES	$17062.88

TOTAL OVERHEADCOST = $37598.88

2)

	ROUNDED EDGE	SQUARED EDGE
TOTAL DIRECT MATERIAL COST	$9600	$21800
TOTAL DIRECT LABOR COST	$6100	$11800
TOTAL OVERHEAD COST (ABC)	$16100.64	$37598.88
TOTAL MANUFACTURING COST	$31800.64$	$71198.88
TOTAL PRODUCTION (FEET)	10400	14200
AVERAGE COST PER FOOT	$3.05	$5.01