The Sabroso Chocolate Company uses activity-based costing (ABC). The controller

Question

The Sabroso Chocolate Company uses activity-based costing (ABC). The controller identified two activities and their budgeted costs:

Setting up equipment is based on setup hours, and other overhead is based on oven hours.
Sabroso produces two products, Fudge and Cookies. Information on each product is as follows:

Required:

1. Calculate the activity rate for (a) setting up equipment and (b) other overhead.

2. How much total overhead is assigned to Fudge using ABC?
$

3. What is the unit overhead assigned to Fudge using ABC? Round to the nearest cent.
$per unit

4. Now, ignoring the ABC results, calculate the plantwide overhead rate, based on oven hours.
$ per oven hour

5. How much total overhead is assigned to Fudge using the plantwide overhead rate?
$

Explanation / Answer

Answer 1. Activity Rate a. Setting up Equipment = $270000 / (4000 hrs + 1000 hrs ) = $54 per setup hr. b. Other Overhead = $900000 / (1000 hrs + 5000 hrs) = $150 per oven hr. Activity Rate = Overhead / Allocation Base Answer 2. Calculation of Total Overhead Assigned to Fudge using ABC Allocation Hrs Rate per Hr. Amount Setting up Equipment 4000 $54 $216,000 Other Overhead 1000 $150 $150,000 Total Overhead $366,000 Answer 3. Unit Overhead Assigend to Fudge = $366000 (Total Overhead) / 5000 (Units Produced) Unit Overhead Assigend to Fudge = $73.20 per Unit Answer 4. Plantwide Overhead Rate = ($270000 + $900000) / 6000 (Total Oven Hrs) Plantwide Overhead Rate = $195 per Oven Hr Answer 5. Total Overhead Assigned to Fudge = $195 X 1000 Hrs Total Overhead Assigned to Fudge = $195000

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