Waves Galore, Inc. manufactures hair curlers and blow-dryers. The handheld hair curler is Waves Galore's high volume product ( 80,000 units annually). It is a "large barrel," 20-watt, triple-heat appliance designed to appeal to the teenage market segment with its glow-in-the-dark handle. The handheld blow-dryer is Waves Galore's lower-volume product ( 40,000 units annually). It is a three-speed, 2,000 watt appliance with a "cool setting" and a removable filter. It also is designed for the teen market.

Both products require one hour of direct labor for completion. Therefore, total annual direct labor hours are \(120,000,(80,000+40,000)\). Expected annual manufacturing overhead is \(\$ 438,000\). Thus, the predetermined overhead rate is \(\$ 3.65\) per direct labor hour. The direct materials cost per unit is \(\$ 5.25\) for the hair curler and \(\$ 9.75\) for the blowdryer. The direct labor cost is \(\$ 8.00\) per unit for the hair curler and the blow-dryer.

Waves Galore purchases most of the parts from suppliers and assembles the finished product at its Fargo, North Dakota plant. It recently adopted activity-based costing, which after this year-end will totally replace its traditional direct labor-based cost accounting system. Waves Galore has identified the following six activity cost pools and related cost drivers and has assembled the following information.

Instructions:

(a) Under traditional product costing, compute the total unit cost of each product. Prepare a simple comparative schedule of the individual costs by product (similar to Illustration 17-4).

(b) Under ABC, prepare a schedule showing the computations of the activity-based overhead rates per cost driver. (Round to the nearest cent.)

(c) Prepare a schedule assigning each activity's overhead cost pool to each product based on the use of cost drivers. (Include a computation of overhead cost per unit, rounding to the nearest cent.)

(d) Compute the total cost per unit for each product under ABC.

(e) Classify each of the activities as a value-added activity or a non-value-added activity.

(f) Comment on (1) the comparative overhead cost per unit for the two products under \(A B C\), and (2) the comparative total costs per unit under traditional costing and \(A B C\).

Transcribed Image Text:

Activity Cost Pools Cost Drivers Overhead Cost Drivers Estimated Expected Use of Expected Use of Cost Drivers per Product Curlers Dryers Purchasing Orders $ 57,500 500 170 330 Receiving Pounds 42,000 140,000 58,000 82,000 Assembling Parts 166,000 830,000 415,000 415,000 Testing Tests 52,000 130,000 82,000 48,000 Finishing Units 60,000 120,000 80,000 40,000 Packing and shipping Cartons 60,500 12,100 8,040 4,060 $438,000