P12.

LO 5
a.
Cost Pool Overhead rate
Materials ordering $72,000 ÷ 8,000 = $9 per order
Materials inspection $75,000 ÷ 375 = $200 per rec. report
Equipment setup $105,000 ÷ 3,000 = $35 per setup
Quality control $69,000 ÷ 3,000 = $23 per inspection
Other $100,000 ÷ $2,000,000 = $0.05 / labor cost

b. Materials ordering $9 per order  100 orders = $ 900

Materials inspection $200 per report  60 reports = 12,000
Equipment setup $35 per setup  30 setups = 1,050
Quality control $23 per inspection  150 inspections = 3,450
Other $0.05 per labor dollar  $39,000 = 1,950
Total overhead assigned to Strawberry Cheesecake $19,350

c. Overhead rate per unit of strawberry cheesecake = $19,350 ÷ 19,500 units =

$0.992

d. Total unit costs per unit of Strawberry Cheesecake = $10 + $2 + $0.992 =

$12.992

e. With a traditional system:

The overhead rate per direct labor dollar is:
($421,000 ÷ $2,000,000 direct labor cost) $0.211 per dollar of direct labor

The direct labor cost, per unit, for the Strawberry Cheesecake:
($39,000 ÷ 19,500 units) $2.000

Overhead assigned to each unit of Strawberry Cheesecake

($0.211  $2.00 direct labor cost) $0.422

Under the traditional system, less overhead cost is assigned to each unit of Strawberry
Cheesecake than under the activity-based costing system. The traditional system
allocates overhead to each unit on the basis of one cost driver. In this case, the cost
driver is direct labor. Meanwhile, the activity-based costing system uses several cost
pools to allocating overhead costs to each unit.

P15. LO 5
 a.
Total cost
Cost Pool Cost pools driver activity
Cost pool rate
Materials ordering $ 840,000 120,000 $7
Materials inspection 525,000 2,100 $250
Equipment setup 2,500,000 125 $20,000
Quality control 1,000,000 5,000 $200
Other 25,000,000 $12,500,000 $2
Total mfg. overhead $29,865,000

b.
Activity Cost pool Total cost
Costs usage rate allocated
Materials ordering 1,200 $7 $8,400
Materials inspection 315 $250 78,750
Equipment setup 1 $20,000 20,000
Quality control 500 $200 100,000
Other $320,000 $2 640,000
Total mfg. overhead $847,150
c.
ABC overhead cost per unit:
Total overhead $847,150
Divide by number of units 40,000
ABC overhead cost per unit $ 21.18

d.
Cost per unit using ABC:
Direct materials $37.00
Direct labor 8.00
Overhead (calculated above) 21.18
Total cost per unit $66.18
e.
Traditional Allocation:
Total overhead $29,865,000
Divide by direct labor dollars 12,500,000
Overhead allocation rate per DL $ $ 2.39

Art of Design:
Total DL $ $ 320,000
OH rate 2.39
Overhead allocated to Art of Design $ 764,800

Traditional overhead cost per unit:

Total overhead $764,800
Divide by number of units 40,000
Overhead cost per unit $ 19.12

Cost per unit using Traditional:

Direct materials $37.00
Direct labor 8.00
Overhead (calculated above) 19.12
Total cost per unit $64.12

Art of Design is undercosted using traditional costing. It is a “specialty” product

with relatively low volume. A more accurate product cost is calculated using
ABC.

P14. LO 2, 5
a.
Calculate predetermined overhead rate based on DLH:
Estimated MOH (a) $1,800,000
Estimated DLH (b) 120,000
Planned OH rate a÷b $15 per DLH

Calculate how much is allocated to Standard and Elite:

Standard Usage of Cost Driver Rate =

3,000 × $15 = $45,000
 Elite Usage of Cost Driver Rate =
300 × $15 = $4,500
b.
Calculate individual pool
rates: Cost pool rate
Maintenance
Costs $700,000 ÷ 120,000 = $5.83/DLH
Setup Costs $500,000 ÷ 200 = $2,500/setup
Engineering
Costs $600,000 ÷ 400 = $1,500/design change

Maintenance
Costs Setup Costs Engineering Total MOH
Standard $17,490 $2,500 $3,000 $22,990
Elite 1,749 35,000 30,000 66,749

c. Using traditional costing, Standard Switches, the high-volume product, are

overcosted, while the low-volume, specialty product, Elite Switches, are undercosted.
ABC will provide more accurate product costs because it does not make the simplifying
assumption that all overhead costs are proportional to labor hours. Rather, some vary
with labor hours, some vary with setups, and some vary with design changes.