Single Plantwide Rate and Activity-Based Costing Whirlpool Corporation conducted
ID: 2451861 • Letter: S
Question
Single Plantwide Rate and Activity-Based Costing
Whirlpool Corporation conducted an A measure of activity that is related to changes in cost. Used in analyzing and classifying cost behavior. Activity bases are also used in the denominator in calculating the predetermined factory overhead rate to assign overhead costs to cost objects.activity-based costing study of its Evansville, Indiana, plant in order to identify its most profitable products. Assume that we select three representative refrigerators (out of 333): one low-, one medium-, and one high-volume refrigerator. Additionally, we assume the following activity-base information for each of the three refrigerators:
Three Representative
Refrigerators
Number of
Machine Hours
Number of
Setups
Number of
Sales Orders
Number of
Units
Refrigerator—Low Volume
60
13
39
300
Refrigerator—Medium Volume
380
12
87
1,900
Refrigerator—High Volume
1,060
9
130
5,300
Prior to conducting the study, the factory overhead allocation was based on a single machine hour rate. The machine hour rate was $300 per hour. After conducting the activity-based costing study, assume that three activities were used to allocate the factory overhead. The new The cost of an activity per unit of activity base, determined by dividing the activity cost pool by the activity base.activity rate information is assumed to be as follows:
Machining Activity
Setup Activity
Sales Order
Processing Activity
Activity rate
$290
$450
$100
Complete the following table, using the single machine hour rate to determine the per-unit factory overhead for each refrigerator (Column A) and the three activity-based rates to determine the activity-based factory overhead per unit (Column B). Finally, compute the percent change in per-unit allocation from the single to activity-based rate methods (Column C).
If required, round all per unit answers to the nearest cent. Round percents to one decimal place. For column C, use the minus sign to indicate a negative or decrease.
Column A
Column B
Column C
Product Volume Class
Single Rate
Overhead Allocation
Per Unit
ABC
Overhead Allocation
Per Unit
Percent Change in
Allocation
Low
$
$
%
Medium
$
$
%
High
$
$
%
Three Representative
Refrigerators
Number of
Machine Hours
Number of
Setups
Number of
Sales Orders
Number of
Units
Refrigerator—Low Volume
60
13
39
300
Refrigerator—Medium Volume
380
12
87
1,900
Refrigerator—High Volume
1,060
9
130
5,300
Explanation / Answer
Calculation of per unit cost under ABC
calculation of per unit cost under single rate:
Low Medium High Machining 60*290 = 17400 380*290 = 110200 1060*290 = 307400 set up 13*450 = 5850 12 *450 = 5400 9*450 = 4050 sales order 39*100 = 3900 87* 100 = 8700 130*100 = 13000 Total 27150 124300 324450 Number of units 300 1900 5300 per unit cost $ 90.50 $65.42 $61.22