Single Plantwide Rate and Activity-Based Costing Whirlpool Corporation conducted
ID: 2562265 • 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 $650 per hour. After conducting the activity-based costing study, assume that three activities were used to allocate the factory overhead. The new activity rate information 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.
Three RepresentativeRefrigerators Number of
Machine Hours Number of
Setups Number of
Sales Orders Number of
Units Refrigerator—Low Volume 130 17 51 650 Refrigerator—Medium Volume 300 16 113 1,500 Refrigerator—High Volume 920 11 170 4,600
Explanation / Answer
Overhead based on single absorption rate of machine hours Product volume class Number of product Machine hours Overhead rate Total Overheads Cost per unit Low 650 130 650 84500 130 Medium 1500 300 650 195000 130 High 4600 920 650 598000 130 Overhead based on ABC Costing Product volume class Number of product Machine hours Number of setupts Number of orders Machining Cost Setup Cost Sales Order Cost Total Overheads Cost per unit (@630 per hour) (@980 per setup) (@220 pe order) Low 650 130 17 51 81900 16660 11220 109780 168.89 Medium 1500 300 16 113 189000 15680 24860 229540 153.03 High 4600 920 11 170 579600 10780 37400 627780 136.47 Diffrential Cost Product volume class Cost as per Single rate Cost as per ABC Percent change in Allocation Per unit Per unit Low 130 168.89 29.90% Medium 130 153.03 17.70% High 130 136.47 4.90%