Question: Whirlpool Corporation conducted an activity based costing study of its Evansville

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:

Prior to conducting the study, the factory overhead allocation was based on a single machine hour rate. The machine hour rate was $ 200 per hour. After conducting the activity-based costing study, assume that three activities were used to allocate the factory overhead. The new activity rate information is assumed to be as follows:

a. 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). Round per-unit overhead to nearest cent and whole percents to one decimal place.

b. Why is the traditional overhead rate per machine hour greater under the single rate method than under the activity-based method?
c. Interpret Column C in your table from part(a).
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  • CreatedJune 27, 2014
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