Type of Textbook uxe Moderate Economy Activity (Cost) Machine maintenance ($360,
ID: 2402687 • Letter: T
Question
Type of Textbook uxe Moderate Economy Activity (Cost) Machine maintenance ($360,000) Setups ($630,000) Packing ($162,000) Photo development ($504,000) Cost Driver Del Number of machine hours Number of setups Number of cartons Number of pictures 300 30 10 4,000 900 15 30 2,000 1,200 50 1,000 Deluxe textbooks are made with the finest-quality paper, six-color printing, and many photographs. Moderate texts are made with three colors and a few photographs spread throughout each chapter. Economy books are printed in black and white and include pictures only in chapter openings Required a. Sheridan currently allocates all overhead costs based on machine hours. The company produced the following number of books during the prior year: Deluxe 50,000 Moderate 150,000 Economy 200,000 Determine the overhead cost per book for each book type b. Determine the overhead cost per book, assuming that the volume-based allocation system described in Requirement a is replaced with an activity-based costing system. (For all requirements, round your answers to 2 decimal places.) Deluxe Moderate Economy a. Cost per book (volume-based allocation) b. Cost per book (activity-based costing)Explanation / Answer
(a) Allocation O/H using machine hrs:-
Total OH cost/Total machine hrs
= (360000 + 630000 + 162000 + 504000) / (300 + 900 + 1200) = $690 per machine hr
Deluxe
Moderate
Economy
Machine hrs
300
900
1200
O/H rate ($)
690
690
690
O/H Allocated (A)
(300 * 690)
=207000
(900 * 690)
=621000
(1200 * 690)
=828000
No of books produced (B)
50000
150000
200000
O/H cost per book (A/B)
4.14
4.14
4.14
(b) ABC Costing :-
Deluxe
Moderate
Economy
Machine Maintainance
(360000/2400) * 300
=45000
(360000/2400) * 900
=135000
(360000/2400) * 1200
=180000
Setup
(630000/50) * 30
=378000
(630000/50) * 15
=189000
(630000/50) * 5
=63000
Packing
(162000/90) * 10
=18000
(162000/90) * 30
=54000
(162000/90) * 50
=90000
Photo Development
(504000/7000) * 4000
=288000
(504000/7000) * 2000
=144000
(504000/7000) * 1000
=72000
Total O/H allocated
729000
522000
405000
No of books produced
50000
150000
200000
O/H cost per book
14.58
3.48
2.025
Deluxe
Moderate
Economy
Cost per book (volume based allocation)
4.14
4.14
4.14
Cost per book (ABC)
14.58
3.48
2.025
Deluxe
Moderate
Economy
Machine hrs
300
900
1200
O/H rate ($)
690
690
690
O/H Allocated (A)
(300 * 690)
=207000
(900 * 690)
=621000
(1200 * 690)
=828000
No of books produced (B)
50000
150000
200000
O/H cost per book (A/B)
4.14
4.14
4.14
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