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Single Plantwide Rate and Activity-Based Costing Whirlpool Corporation conducted an activity-based costing study of its Evansville,...

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 $ $

%

Solutions

Expert Solution

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

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