Single Plantwide Rate and Activity-Based Costing Whirlpool Corporation conducted
ID: 2488028 • Letter: S
Question
Single Plantwide Rate and Activity-Based Costing
Whirlpool Corporation conducted an 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:
Prior to conducting the study, the factory overhead allocation was based on a single machine hour rate. The machine hour rate was $400 per hour. After conducting the activity-based costing study, assume that three activities were used to allocate the factory overhead. The new activity rateinformation is assumed to be as follows:
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.
Feedback
Three RepresentativeRefrigerators Number of
Machine Hours Number of
Setups Number of
Sales Orders Number of
Units Refrigerator—Low Volume 80 16 48 400 Refrigerator—Medium Volume 390 15 107 1,950 Refrigerator—High Volume 1,000 11 160 5,000
Explanation / Answer
Single overhead rate
Low = 400x80/400 = $80 per unit
Medium = 400x390/1950
= $80 per unit
High = 400x1000/5000 =80 per unit
Over allocation rate
Percentage change in allocation rate
Low = (97.60-80)/80 = 22%
Medium = (89.75 - 80)/80 = 12.1875%
High = (83.48 - 80)/80 = 4.35%
Product Volume Class Single RateOverhead Allocation
Per Unit ABC
Overhead Allocation
Per Unit Percent Change in
Allocation Low 80 97.60 22% Medium 80 89.75 12.1875% High 80 83.48 4.35%