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Accounting 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. The activities listed below area sample of possible cost pools for Waterways. Assembling Payroll Billing Plant supervision Digging trenches Product design Janitorial Purchasing materials Machine maintenance Selling Machine setups Testing Molding Welding Packaging Using the following information, determine the overhead rates and the actual cost assigned for each of the activity cost pools in a possible ABC system for Waterways. (Round answers to 2 decimal places, e.g. 12.25.) WATERWAYS CORPORATION Expected Use of Cost Estimated Drivers per Actual Use of Activity Cost Pools Cost Drivers Overhead Activity Drivers Irrigation installation Labor cost $2,094.660 12,930 Machining (all machine use) Machine hours 1,550,750 31,015.000 Customer orders Number of orders 34,710 2.670 Shipping none (direct) N/A N/A Design Cost per design 735 7 Selling Number of sales calls 384,200 22,600 WATERWAYS CORPORATION Activity- Based Overhead Activity Cost Pools Actual Cost Assigned Rates Irrigation installation $ Machining (all machine use) Customer orders Design Selling (2) How might using ABC affect decision making at Waterways? $ 0000 12,908 31,016,000 2.638 traced directly 6 22,820

Accounting 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. The activities listed below area sample of possible cost pools for Waterways. Assembling Payroll Billing Plant supervision Digging trenches Product design Janitorial Purchasing materials Machine maintenance Selling Machine setups Testing Molding Welding Packaging Using the following information, determine the overhead rates and the actual cost assigned for each of the activity cost pools in a possible ABC system for Waterways. (Round answers to 2 decimal places, e.g. 12.25.) WATERWAYS CORPORATION Expected Use of Cost Estimated Drivers per Actual Use of Activity Cost Pools Cost Drivers Overhead Activity Drivers Irrigation installation Labor cost $2,094.660 12,930 Machining (all machine use) Machine hours 1,550,750 31,015.000 Customer orders Number of orders 34,710 2.670 Shipping none (direct) N/A N/A Design Cost per design 735 7 Selling Number of sales calls 384,200 22,600 WATERWAYS CORPORATION Activity- Based Overhead Activity Cost Pools Actual Cost Assigned Rates Irrigation installation $ Machining (all machine use) Customer orders Design Selling (2) How might using ABC affect decision making at Waterways? $ 0000 12,908 31,016,000 2.638 traced directly 6 22,820

Principles of Accounting Volume 2
Principles of Accounting Volume 2
19th Edition
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax
Chapter6: Activity-based, Variable, And Absorption Costing
Section: Chapter Questions
Problem 13MC: Activity-based costing systems: A. use a single predetermined overhead rate based on machine hours...
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Accounting 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. The activities listed below area sample of possible cost pools for Waterways. Assembling Payroll Billing Plant supervision Digging trenches Product design Janitorial Purchasing materials Machine maintenance Selling Machine setups Testing Molding Welding Packaging Using the following information, determine the overhead rates and the actual cost assigned for each of the activity cost pools in a possible ABC system for Waterways. (Round answers to 2 decimal places, e.g. 12.25.) WATERWAYS CORPORATION Expected Use of Cost Estimated Drivers per Activity Cost Pools Actual Use of Drivers Cost Drivers Overhead Activity Irrigation installation Labor cost $2,094,660 12,930 12,908 Machining (all machine use) Machine hours 1.550,750 31.015.000 31,016,000 Customer orders Number of orders 34,710 2,670 2,638 Shipping none (direct) N/A N/A traced directly Design Cost per design 735 7 6 Selling Number of sales calls 384,200 22,600 22,820 WATERWAYS CORPORATION Activity- Based Overhead Rates Activity Cost Pools Actual Cost Assigned Irrigation installation $ Machining (all machine use) Customer orders Design Selling (2) How might using ABC affect decision making at Waterways? $
Transcribed Image Text:Accounting 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. The activities listed below area sample of possible cost pools for Waterways. Assembling Payroll Billing Plant supervision Digging trenches Product design Janitorial Purchasing materials Machine maintenance Selling Machine setups Testing Molding Welding Packaging Using the following information, determine the overhead rates and the actual cost assigned for each of the activity cost pools in a possible ABC system for Waterways. (Round answers to 2 decimal places, e.g. 12.25.) WATERWAYS CORPORATION Expected Use of Cost Estimated Drivers per Activity Cost Pools Actual Use of Drivers Cost Drivers Overhead Activity Irrigation installation Labor cost $2,094,660 12,930 12,908 Machining (all machine use) Machine hours 1.550,750 31.015.000 31,016,000 Customer orders Number of orders 34,710 2,670 2,638 Shipping none (direct) N/A N/A traced directly Design Cost per design 735 7 6 Selling Number of sales calls 384,200 22,600 22,820 WATERWAYS CORPORATION Activity- Based Overhead Rates Activity Cost Pools Actual Cost Assigned Irrigation installation $ Machining (all machine use) Customer orders Design Selling (2) How might using ABC affect decision making at Waterways? $
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