Direct labor or machine hours may not be the appropriate cost driver for overhead in all...

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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 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 Expected Use of Cost Estimated Drivers per Actual Use of Activity Cost Pools Cost Drivers Overhead Activity Drivers Irrigation installation Labor cost $2,002,200 14,100 Machining (all machine use) Machine hours 1,805,500 36,110,000 Customer orders Number of orders 29,770 2,290 Shipping none (direct) N/A N/A Design Cost per design 896 8 Selling Number of sales calls 361,500 24,100 WATERWAYS CORPORATION Activity- Based Overhead Rates Activity Cost Pools Irrigation installation Machining (all machine use) Customer orders Design Selling GA 67 00000 Actual Cost Assigned 14,077 36,111,000 2,252 traced directly 7 24,310 100 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 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 Expected Use of Cost Estimated Drivers per Actual Use of Activity Cost Pools Cost Drivers Overhead Activity Drivers Irrigation installation Labor cost $2,002,200 14,100 Machining (all machine use) Machine hours 1,805,500 36,110,000 Customer orders Number of orders 29,770 2,290 Shipping none (direct) N/A N/A Design Cost per design 896 8 Selling Number of sales calls 361,500 24,100 WATERWAYS CORPORATION Activity- Based Overhead Rates Activity Cost Pools Irrigation installation Machining (all machine use) Customer orders Design Selling GA 67 00000 Actual Cost Assigned 14,077 36,111,000 2,252 traced directly 7 24,310 100

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A B WATERWAYS CORPORATION Activity Based Overhead Rate... View the full answer