The Sabroso Chocolate Company uses activity-based costing (ABC). The controller identified two activities and their budgeted costs:
Setting up equipment ..............$270,000
Other overhead .....................$900,000
Setting up equipment is based on setup hours, and other overhead is based on oven hours. Oscuro produces two products, Fudge and Cookies. Information on each product is as follows:

Required:
1. Calculate the activity rate for
(a) Setting up equipment
(b) Other overhead.
2. How much total overhead is assigned to Fudge using ABC?
3. What is the unit overhead assigned to Fudge using ABC?
4. Now, ignoring the ABC results, calculate the plant wide overhead rate, based on oven hours.
5. How much total overhead is assigned to fudge using the plant wide overhead rate?
6. Explain why the total overhead assigned to Fudge is different under the ABC system (i.e., using the activity rates) than under the non ABC system (i.e., using the plant wide rate).

Units produced Setup Oven hours 5.000 4.000 1,000 25,000 1000 hours