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	20		22		66		100
Refrigerator—Medium Volume	320		20		147		1,600
Refrigerator—High Volume	1,000		15		220		5,000	Prior to conducting the study, the factory overhead allocation was based on a single machine hour rate. The machine hour rate was $100 per hour. After conducting the activity-based costing study, assume that three activities were used to allocate the factory overhead. The new activity rateinformation is assumed to be as follows: Machining Activity Setup Activity Sales Order Processing Activity Activity rate $100 $150 $30 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

percent change in per-unit allocation from the single to activity-based rate methods

	Column A	Column B	Column C
Product Volume Class	Single Rate	ABC
	Overhead Allocation	Overhead Allocation	Percent Change in
	Per Unit	Per Unit	Allocation
Low	20	72.8	264%
Medium	20	24.6	23%
High	20	21.8	9%

Working Notes:

Cost by Plantwide method

Three Representative	Number of
Refrigerators	Machine Hours	Machine hour rate	Total factory overhead	Total units	Per Unit allocation
Refrigerator—Low Volume	20	100	2,000	100	20
Refrigerator—Medium Volume	320	100	32,000	1,600	20
Refrigerator—High Volume	1,000	100	100,000	5,000	20

Cost by ABC

	Refrigerator low volume			Refrigerator medium volume			Refrigerator high volume
Activity	Base Usage	Activity Rate	Activity Cost	Base Usage	Activity Rate	Activity Cost	Base Usage	Activity Rate	Activity Cost
	(a)	(b)	(c )	(a)	(b)	(c )	(a)	(b)	(c )
Machining activity	20	$ 100	2,000	320	$ 100	32,000	1,000	$ 100	100,000
Setup activity	22	$ 150	3,300	20	$ 150	3,000	15	$ 150	2,250
Sales Order processing activity	66	$ 30	1,980	147	$ 30	4,410	220	$ 30	6,600
Total activity cost			7,280			39,410			108,850
Total units			100			1,600			5,000
Per unit cost			72.8			24.6			21.8