Question

Glassworks Inc. produces two types of glass shelving, rounded edge and squared edge, on the same production line. For the current period, the company reports the following data.
  

Rounded Edge Squared Edge Total
Direct materials $ 9,600 $ 21,400 $ 31,000
Direct labor 6,000 11,800 17,800
Overhead (300% of direct labor cost) 18,000 35,400 53,400
Total cost $ 33,600 $ 68,600 $ 102,200
Quantity produced 10,400 ft. 14,200 ft.
Average cost per ft. (rounded) $ 3.23 $ 4.83

  
Glassworks's controller wishes to apply activity-based costing (ABC) to allocate the $53,400 of overhead costs incurred by the two product lines to see whether cost per foot would change markedly from that reported above. She has collected the following information.

Overhead Cost Category
(Activity Cost Pool)
Cost
Supervision $ 2,136
Depreciation of machinery 28,520
Assembly line preparation 22,744
Total overhead $ 53,400

  
She has also collected the following information about the cost drivers for each category (cost pool) and the amount of each driver used by the two product lines. (Round activity rate and cost per unit answers to 2 decimal places.)

Usage
Overhead Cost Category
(Activity Cost Pool)
Driver Rounded Edge Squared Edge Total
Supervision Direct labor cost ($) $ 6,000 $ 11,800 $ 17,800
Depreciation of machinery Machine hours 200 hours 700 hours 900 hours
Assembly line preparation Setups (number) 31 times 94 times 125 times
1. Assign these three overhead cost pools to each of the two products using ABC.
Activity Overhead Cost Activity Drivers Activity Rate
Supervision Direct labor cost %
Depreciation of machinery Machine hours
Assembly line preparation Setups
Rounded edge Activity rate Activity driver incurred Overhead assigned
Supervision % 0
Depreciation of machinery 0
Assembly line preparation 0
Squared edge Activity rate Activity driver incurred Overhead assigned
Components
Supervision % 0
Depreciation of machinery 0
Assembly line preparation 0
2. Determine average cost per foot for each of the two products using ABC.
Rounded edge Squared edge
0 0
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Answer #1
1. Assign these three overhead cost pools to each of the two products using ABC.
Activity Overhead Cost Divided by Activity Drivers Activity Rate
Supervision 2,136 /   $        17,800 Direct labor cost 12.00%
Depreciation of machinery 28,520 /   900 Machine hours 31.69
Assembly line preparation 22,744 /   125 Setups 181.95
Rounded edge Activity rate Multiply: Activity driver incurred Overhead assigned
Supervision 12.00% x $        6,000 Direct labor cost $              720
Depreciation of machinery         31.69 x                200 Machine hours $          6,338
Assembly line preparation      181.95 x                  31 Setups $          5,640
Total overhead cost assigned to Rounded edge $        12,698
Squared edge Activity rate Multiply: Activity driver incurred Overhead assigned
Supervision 12.00% x $     11,800 Direct labor cost $          1,416
Depreciation of machinery         31.69 x                700 Machine hours $        22,183
Assembly line preparation      181.95 x                  94 Setups $        17,103
Total overhead cost assigned to Rounded edge $        40,702
2. Determine average cost per foot for each of the two products using ABC.
Rounded edge Squared edge
Direct materials $          9,600 $     21,400
Direct labor $          6,000 $     11,800
Overhead assigned $        12,698 $     40,702
Total cost $        28,298 $     73,902
Divided by: Quantity produced            10,400          14,200
Average cost per foot (rounded) $             2.72 $          5.20
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