### Overhead Cost Allocation Example This example demonstrates how to allocate overhead costs to products using Activity-Based Costing (ABC). Below are the steps and details required:#### Overhead Cost Category**Activity Cost Pools:**- Supervision- Depreciation of machinery- Assembly line preparation**Drivers:**- **Supervision:** Direct labor cost ($)- **Depreciation of machinery:** Machine hours- **Assembly line preparation:** Setups (number)#### Usage Data| Driver | Rounded Edge | Squared Edge | Total ||---------------------|--------------|--------------|--------|| Direct labor cost ($)| $6,000 | $12,000 | $18,000 || Machine hours | 200 hours | 600 hours | 800 hours || Setups | 30 times | 95 times | 125 times |#### Required Steps1. **Assign these three overhead cost pools to each of the two products using ABC:** **Overhead Cost Allocation Table:** | Activity | Overhead Cost | Activity Drivers | Activity Rate | % | |----------------------------|---------------|------------------------|---------------|------| | Supervision | | Direct labor cost | | | | Depreciation of machinery | | Machine hours | | | | Assembly line preparation | | Setups | | | **Rounded edge allocation:** | Activity | Activity rate | Activity driver incurred | Overhead assigned | |-----------------------------|---------------|--------------------------|-------------------| | Supervision | % | | | | Depreciation of machinery | 0 | | | | Assembly line preparation | 0 | | | **Squared edge allocation:** | Components | Activity rate | Activity driver incurred | Overhead assigned | |-----------------------------|---------------|--------------------------|-------------------| | Supervision | % | | | | Depreciation of machinery | 0 | | | | Assembly line preparation | 0 | | |2. **Determine the average cost per foot for each of the two products using ABC:** **Cost per Foot Analysis:** | | Rounded edge | ### Glassworks Inc. Cost Analysis**Product Lines: Rounded Edge and Squared Edge Glass Shelving**Glassworks Inc. produces two types of glass shelving, rounded edge and squared edge, on the same production line. For the current period, the company reports the following data:#### Cost Data Summary| Cost Components | Rounded Edge | Squared Edge | Total ||--------------------------|--------------|--------------|---------|| Direct materials | $9,500 | $21,400 | $30,900 || Direct labor | $6,000 | $12,000 | $18,000 || Overhead (300% of direct labor cost) | $18,000 | $36,000 | $54,000 || **Total cost** | $33,500 | $69,400 | $102,900|| Other Information | | | ||--------------------------|--------------|--------------|---------|| Quantity produced | 10,500 ft. | 14,200 ft. | || Average cost per ft. (rounded) | $3.19 | $4.89 | |The controller at Glassworks Inc. aims to apply activity-based costing (ABC) to allocate the $54,000 of overhead costs between the two product lines to determine if the cost per foot would change. The following additional information was collected:#### Overhead Cost Information| Overhead Cost Category (Activity Cost Pool) | Cost ||---------------------------------------------|--------|| Supervision | $2,160 || Depreciation of machinery | $28,840|| Assembly line preparation | $23,000|| **Total overhead** | $54,000|#### Usage DataThe following data indicates the usage of cost drivers for each category and each product line:| Overhead Cost Category (Activity Cost Pool) | Driver | Usage ||---------------------------------------------|---------------------------|-----------------|| | | Rounded Edge | Squared Edge | Total ||---------------------------------------------|---------------------------|-----------------|----------------|----------|| Supervision | Direct labor cost ($) | $6,000 | $12,000 | $18,000 || Depreciation of machinery | Machine hours | 200 hours | 600 hours

calculation of above requirement are as follows.

Overhead Cost Category (Activity Cost Pool) Supervision Driver Depreciation of machinery Assembly line preparation Direct labor cost ($) Machine hours Setups (number) Required: 1. Assign these three overhead cost pools to each of the two products using ABC. Activity Overhead Cost Activity Drivers Supervision Direct labor cost Depreciation of machinery Machine hours Setups Assembly line preparation Rounded edge Activity rate Supervision Depreciation of machinery Assembly line preparation % 0 0 0 Rounded Edge $6.000 200 hours 30 times Squared Edge $12,000 600 hours 95 times Activity Rate Activity driver incurred % Total 800 hours 125 times Overhead assigned $18,000

Overhead Cost Category (Activity Cost Pool) Supervision Driver Depreciation of machinery Assembly line preparation Direct labor cost ($) Machine hours Setups (number) Required: 1. Assign these three overhead cost pools to each of the two products using ABC. Activity Overhead Cost Activity Drivers Supervision Direct labor cost Depreciation of machinery Machine hours Setups Assembly line preparation Rounded edge Activity rate Supervision Depreciation of machinery Assembly line preparation % 0 0 0 Rounded Edge $6.000 200 hours 30 times Squared Edge $12,000 600 hours 95 times Activity Rate Activity driver incurred % Total 800 hours 125 times Overhead assigned $18,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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