Question

Wellington Chocolate Company uses activity-based costing (ABC). The controller identified two activities and their budgeted costs:Setting up equipment $598,000Other overheard $6,400,000Setting up equipment is based on setup hours, and other overhead is based on oven hours. Wellington produces two products, Fudge and Cookies. Information on each product is as follows:Fudge CookiesUnits produced 8,000 445,000Setup hours 10,400 2,600Oven hours 5,000 35,000Required:1. Calculate the activity rate for (a) setting up equipment and (b) other overhead.a. Setting up equipment $_____ per setup hourb. Other overhead $_____ per oven hour2. 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 plantwide overhead rate, based on oven hours.5. How much total overhead is assigned to Fudge using the plantwide overhead rate?6a. The difference in the total overhead assigned to Fudge is different under the ABC system and non-ABC system because.6b. What is the difference in total overhead assigned to fudge under the two methods?

Answer 1

Answer:

Explanation:

1. Setting up equipment rate = (598,000/(10,400+2,600))= 46/setup hour

Other overhead rate = (6,400,000/(35,000+5,000)= 160/oven hour

2. Total overhead assigned to Fudge:

Setting up Equipment = 46*10,400 = $478,400

Other overhead = 160*5000 = $800,000

Total = $1,278,400

3. Units produced = 8000

Unit overhead assigned to Fudge = $1,278,400/8000 = $159.8/unit

4. Plantwide overhead rate = (598,000+6,400,000)/40,000 = $174.95/hour

5. Overhead assigned to Fudget = 174.95*5000 = $874,750  

6a. The difference in the total overhead assigned to Fudge is different under the ABC system and non-ABC system because under traditinal method oven hours; under ABC setup hours are used as allocation rate.

6b. Difference = 1,278,400 - 874,750 = $403,650