Waterways Continuing Problem 18 (Part Level Submission) 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.

Waterways Continuing Problem 18 (Part Level Submission) For each of these cost pools, what would be the likely activity cost driver? Assembling Billing Digging trenches Janitorial Machine maintenance Machine setups Molding Packaging Payroll Plant supervision Product design Purchasing materials Number of Purchase Orders Selling Testing Welding Labor Cost or Labor Hours Number of Billings Sent Machine Hours Machine Hours Machine Hours Number of Purchase Orders Cost Per Design or Development Costs or Number of Designs Number of Sales Calls or Number of Items Sold Number of Tests