Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN: 9781305970663
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
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Multiple Versus Single Overhead Rates, Activity Drivers
Deoro Company has identified the following overhead activities, costs, and activity drivers for the coming year:
Activity
Expected Cost Activity Driver Activity Capacity
Setting up equipment
$478,490
Number of setups
590
Ordering costs
358,600
Number of orders
16,300
Machine costs
848,000
Machine hours
42,400
Receiving
416,000
Receiving hours
10,400
Deoro produces two models of dishwashers with the following expected prime costs and activity demands:
Model A
Model B
Direct materials
$616,000
$770,000
Direct labor
489,000
487,000
Units completed
16,000
7,100
Direct labor hours
5,200
2,100
Number of setups
430
160
Number of orders
5,200
11,100
Machine hours
24,200
18,200
Receiving hours
3,800
6,600
The company's normal activity is 7,300 direct labor hours.
Required:
1. Determine the unit cost for each model using direct labor hours to apply overhead. Round intermediate calculations and final answers to nearest cent.
Unit Cost
Model A
Model B
2. Determine the unit cost for each model using the four activity drivers. Round your answers to nearest cent.
Unit Cost
Model A
Model B
3. Which method produces the more accurate cost assignment?
Direct labor hours
Four activity drivers
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Transcribed Image Text:Multiple Versus Single Overhead Rates, Activity Drivers Deoro Company has identified the following overhead activities, costs, and activity drivers for the coming year: Activity Expected Cost Activity Driver Activity Capacity Setting up equipment $478,490 Number of setups 590 Ordering costs 358,600 Number of orders 16,300 Machine costs 848,000 Machine hours 42,400 Receiving 416,000 Receiving hours 10,400 Deoro produces two models of dishwashers with the following expected prime costs and activity demands: Model A Model B Direct materials $616,000 $770,000 Direct labor 489,000 487,000 Units completed 16,000 7,100 Direct labor hours 5,200 2,100 Number of setups 430 160 Number of orders 5,200 11,100 Machine hours 24,200 18,200 Receiving hours 3,800 6,600 The company's normal activity is 7,300 direct labor hours. Required: 1. Determine the unit cost for each model using direct labor hours to apply overhead. Round intermediate calculations and final answers to nearest cent. Unit Cost Model A Model B 2. Determine the unit cost for each model using the four activity drivers. Round your answers to nearest cent. Unit Cost Model A Model B 3. Which method produces the more accurate cost assignment? Direct labor hours Four activity drivers
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