Concept explainers
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
Machining Activity | Setup Activity | Sales order Processing Activity | |
Activity rate | $160 | $240 | $55 |
A. 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). (Round per-unit overhead to two decimal places and percents to one decimal place.)
Product Volume Class | Column A Single Rate Overhead Allocation per Unit | Column B ABC Overhead Allocation per Unit | Column C Percent Change in Allocation (Col. B - Col. A)/Col. A |
Low | |||
Medium | |||
High |
B. Why is the traditional overhead rate per machine hour greater under the single rate method than under the activity-based method?
C. Interpret Column C in your table from part (A).
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Chapter 26 Solutions
Bundle: Financial & Managerial Accounting, 13th + Working Papers, Volume 1, Chapters 1-15 For Warren/reeve/duchac’s Corporate Financial Accounting, ... 13th + Cengagenow™v2, 2 Terms Access Code
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