Problem 3 (Textbook Reference: P4-4) Activity-based costing versus traditional costing C&W Corporation manufactures travel clocks and watches. Overhead costs are currently allocated using direct- labor hours, but the controller has recommended using an activity-based costing system based on the following data:

Activity =Production setup, Material handling and requisition, Packaging and shipping ,Total overhead

Cost Driver= Setups, Parts, Units shipped

Cost $ 100,000 $ 30,000 $ 60,000 $ 190,000

Activity Level= Travel Clocks20,24,80,000 Watches 30, 36, 120,000 Required (Traditional Method):

1. Using the traditional cost assignment method, calculate the plant-wide overhead rate using labor-hours as the allocation base. Assume labor-hours required to assemble each unit are 0.5 hours per travel clock and 1.0 hour per watch, and that 80,000 travel clocks and 120,000 watches were produced. Plant-wide overhead rate: $___________________per direct labor hour

2. Under the traditional cost assignment method using the plant-wide overhead rate, how much total overhead cost is allocated to the: Travel clocks: $________________ Watches: $________________ *** Problem 3 is continued on the next page *** Required (ABC Method):

3. Using the Activity-based Costing (ABC) assignment method, calculate the activity cost rates for the following activities: (a) Setup costs: $___________________per production run (b) Materials handling costs: $___________________per part (c) Packaging and shipping costs: $___________________per shipment

4. Using the Activity-based Costing (ABC) assignment method how much total overhead cost is allocated to the: Travel clocks: $________________ Watches: $________________