Task :1 Activity-Based Costing Problem

The Divine Cheesecake Shoppe is a national bakery that is known for its strawberry cheesecake. It also makes 12 different kinds of cheesecake as well as many other types of bakery items. It has recently adopted an activity-based costing system to assign manufacturing overhead to products. The following data relate to its strawberry cheesecake and the ABC cost pools:

Strawberry Cheesecake:

Annual Production 17,500 units

Direct Materials per unit $6

Direct Labor per unit $2

Cost Pool Cost Cost Driver

Materials ordering $72,000 # of purchase orders

Materials inspection $75,000 # of receiving reports

Equipment setup $105,000 # number of setups

Quality Control $69,000 # of inspections

Other $100,000 Direct Labor Costs

Total $421,000

Manufacturing Overhead

Cost Pool All Products Strawberry Cheesecake

Materials Ordering 8,000 orders 100

Material Inspection 375 receiving reports 60

Equipment Setup 3,000 setups 30

Quality Control 3,000 Inspections 150

Other $2,000,000 direct labor $35,000

1. Calculate the overhead rate per unit of activity for each of the five cost pools.

2. Calculate the total overhead assigned to the production of the strawberry cheesecake.

3. Calculate the overhead cost per unit for the strawberry cheesecake. Round to three decimal places.

4. Calculate the total unit cost for the strawberry cheesecake. Round to three decimal places.

5. Suppose that the Divine Cheesecake Shoppe allocates overhead by a traditional production volume-based method using direct labor dollars as the allocation base and one cost pool.

a. Determine the overhead rate per direct labor dollar and the per unit overhead assigned to the strawberry cheesecake.

b. Discuss the difference in cost allocations between the traditional method and the activity-based costing approach. Round to three decimal places.