Direct labor or machine hours may not be the appropriate cost driver for overhead in all areas of manufacturing due to the complexities of many manufacturing processes.

Many companies use activity-based costing (ABC) which uses multiple drivers (items that consume resources) rather than just one driver to apply overhead to their activities. With ABC, a company can use a cost driver that has a direct cause/effect relationship in its applied overhead costs.

Waterways looked into ABC as a method of costing because of the variety of items it produces and the many different activities in which it is involved. The activities listed below area sample of possible cost pools for Waterways.

Assembling

Payroll

Billing

Plant supervision

Digging trenches

Product design

Janitorial

Purchasing materials

Machine maintenance Selling

Machine setups

Testing

Molding

Welding

Packaging

(b)

Using the following information, determine the overhead rates and the actual cost assigned for each of the activity cost pools in a possible ABC system for Waterways. (Round answers to 2 decimal places, e.g. 12.25.)

WATERWAYS CORPORATION
Activity Cost Pools	Cost Drivers	Overhead	Estimated Cost Estimated Driversper Activity	Use of Cost Drivers
Irrigation installation	Labor cost	$1,857,000	12,380	12,364
Machining (all machine use)	Machine hours	1,691,400	33,828,000	33,829,000
	Number of
Customer orders	orders	34,580	2,660	2,625
Shipping	none (direct)	N/A	N/A	traced directly
Design	Cost per design	888
Selling	Number of sales calls	380,800	23,800	24,010

WATERWAYS CORPORATION

Activity-Based

Overhead

Rates

Activity Cost

Pools

Irrigation installation

Machining (all machine use)

Customer orders

Design

Selling

Cost

Assigned

Direct labor or machine hours may not be the appropriate cost difiver for overhead in att areas of manufacturing due to the complexities of mary manufacturing processes. Many companies use activity-based costing (ABC) which unes multiple drivers (items that consume resources) rather than just one driver to apply overhead to their activities. With ABC. a company can use a cost driver that has a direct cause/effect relationship in ils applied overhead costs. Waterways looked into ABC as a method of costing because of the variety of items it produces and the mamy different activities in which it is irwolved. The activities listed below area sample of possible cost pools for Waterways. (b) Using the following information, determine the overhead rates and the actual cost assigned for each of the activity cost pools in a possible ABC system for Waterways, (Round answers to 2 decimal pleces. e.s. 12.25.) Direct labor or machine hoursmay not be the appropriate cost driver for overhesd in all areas of manufacturing doe to the complexities of many manulacturine processes. Mary companies use activity-based costine (ABC) which uses multiple drivers (items that consume resources) rather than just one driver to apply overhead to their activities. With ABC, a company can use a cost driver that has a direct causeleffect relationship in its applied overhead costs. Wuerways looked into ABC as a method of costing because of the variety of iteens it produces and the maxy different activities in which it is involved The activities listed below area sample of possitile cost pools for Waterways. (b) Using the following information, determine the overfead rates and the actual cost assigned for each of the activity cost pools in a possible ABC system for Waterways. (Round answers to 2 decimal ploces. e.s. 12.25 J exehend cass. Waterwan. his: es. 12253