Chapter C, Problem 6E

Exercise C-6 Activity-based costing P2
Northwest Company 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.

Rounded edge  squared edge
Total
Direct materials............................... $19,000 $43,200 $ 62,200
Direct labor................................... 12,200 23,800 36,000
Overhead (300% of direct labor cost)..... 36,600 71,400 108,000
Total cost.....................................
$67.800 $138,400 $206,200
Ouantity produced............................. 10,500 ft. 11,100 ft.
Average tost per ft (rounded).................... $ 6.46 $ 9.82

Northwest's controller wishes to apply activity-based costing (ABC) to allocate the $108,000 of overhead costs incurred by the two product lines to see whether cost per foot would change markedly from that reported above. She has collected the following information.
Overhead cost category (actually cost pool)costs
Supervision ................................................
$ 5,400
Depreciation of machinery.....................................
56,500
Assembly line preparation.....................................
46,000
Total overhead..............................................
$108,000

She has also collected the following information about the cost drivers for each category (cost pool) and the amount of each driver used by the two product lines.

Overhead cost category 		Driver				Usege
(actually  cost pool)					Rounded edge     squared edge	Total

Supervision ........................    Direct labor cost 	($$12,200        $23,800          36,000
Depreciation of machinery .....Machine hours               500 hours     1,500hours    2,000hours  
Assembly line preparation......Setups (number)           40 times    210 times               250 times

Required
1. Assign these three overhead cost pools to each of the two products using ABC.
2. Determine average cost per foot for each of the two products using ABC. Check (2: Rounded edge. 15.19: Squared edge. $10.76