Question

In: Accounting

Glassworks Inc. produces two types of glass shelving, rounded edge and squared edge, on the same...

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

Solutions

Expert Solution

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

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