Activity Expected Cost Activity Driver Activity Capacity Setting up equipment Ordering costs Machine costs Number of setups Number of orders Machine hours Receiving hours S480,000 600 360,000 840,000 18,000 42,000 Receiving 400,000 10,000 Model A Model B Direct materials $600,000 $480,000 16,000 6,000 $800,000 $480,000 8,000 2,000 200 Direct labor Units completed Direct labor hours Number of setups 400 Number of orders Machine hours 6,000 24,000 12,000 18,000 7,000 Receiving hours 3,000

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Deoro Company has identified the following overhead activities, costs, and activity drivers for the coming year:
Deoro produces two models of dishwashers with the following expected prime costs and activity demands:

The company’s normal activity is 8,000 direct labor hours.
Required:
1. Determine the unit cost for each model using direct labor hours to apply
overhead.
2. Determine the unit cost for each model using the four activity drivers.
3. Which method produces the more accurate cost assignment? Why?

Activity
Expected Cost
Activity Driver
Activity Capacity
Setting up equipment
Ordering costs
Machine costs
Number of setups
Number of orders
Machine hours
Receiving hours
S480,000
600
360,000
840,000
18,000
42,000
Receiving
400,000
10,000
Transcribed Image Text:Activity Expected Cost Activity Driver Activity Capacity Setting up equipment Ordering costs Machine costs Number of setups Number of orders Machine hours Receiving hours S480,000 600 360,000 840,000 18,000 42,000 Receiving 400,000 10,000
Model A
Model B
Direct materials
$600,000
$480,000
16,000
6,000
$800,000
$480,000
8,000
2,000
200
Direct labor
Units completed
Direct labor hours
Number of setups
400
Number of orders
Machine hours
6,000
24,000
12,000
18,000
7,000
Receiving hours
3,000
Transcribed Image Text:Model A Model B Direct materials $600,000 $480,000 16,000 6,000 $800,000 $480,000 8,000 2,000 200 Direct labor Units completed Direct labor hours Number of setups 400 Number of orders Machine hours 6,000 24,000 12,000 18,000 7,000 Receiving hours 3,000
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