Question

Northwest Company 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.


Northwest’s controller wishes to apply activity-based costing (ABC) to allocate the $ 108,000 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,400
Depreciation of machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,600
Assembly line preparation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,000
Total overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 108,000
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.


Required
1. Assign these three overhead cost pools to each of the two products using ABC.
2. Determine average cost per foot for each of the two products using ABC.
3. Compare the average cost per foot under ABC with the average cost per foot under the current method for each product. Explain why a difference between the two cost allocation methodsexists.


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  • CreatedNovember 29, 2013
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