Daisy Wheel, Inc. Automobile Steering Wheels Daisy Wheel produces 2 lines of ste
ID: 2519158 • Letter: D
Question
Daisy Wheel, Inc. Automobile Steering Wheels Daisy Wheel produces 2 lines of steering wheels at its plant in Taft, Louisiana - 12-in. wheels for cars and 14-in. wheels for trucks. A significant portion of overhead costs come from the Packing, Shipping and Inspection departments. These departments are housed in the same plant. Both product lines also share engineering and support activities The following are the cost analyses for the month of October 2017 Activity TOTAL COST ACTIVITY COST ACTIVITY ACTIVITY Department Overhead costs DRIVER QTY UNIT RATE Packing $ 40,000 Units produced 4000 $ 10 Shipping $ 50,000 Number of batches 40 $ 1,250 Inspection & QC $ 120,000 Number of machine set-ups 20 $ 6,000 Shared Support Engineering $ 32,000 Machine Hours 800 $ 40 Purchasing and Receiving $ 12,000 Purchase Orders 30 $ 400 Plant Maintenance $ 12,000 Machine Hours 800 $ 15 Total $ 266,000 The following table shows units and resource consumption of the two lines in that month (Oct 2017) Car St. Wheels Truck St. Wheels Total Units Produced 2000 2000 4000 Number of batches 10 30 40 Machine Hours 300 500 800 Machine set-ups 5 15 20 Purchase Orders 10 20 30 1. If Daisy Wheel used a simple Plant Overhead rate per unit produced without differentiating activites, what would be the total plant overhead cost per unit for these six departments 2. Use Activity Based Cost Analysis to refine the Plant Overhead cost per unit, for the given activities, of Car Steering Wheels and Truck Steering Wheels 3. Briefly discuss your results, simply stating why the results using ABC differed widely from those using flat rates per produced unit Daisy Wheel, Inc. Automobile Steering Wheels Daisy Wheel produces 2 lines of steering wheels at its plant in Taft, Louisiana - 12-in. wheels for cars and 14-in. wheels for trucks. A significant portion of overhead costs come from the Packing, Shipping and Inspection departments. These departments are housed in the same plant. Both product lines also share engineering and support activities The following are the cost analyses for the month of October 2017 Activity TOTAL COST ACTIVITY COST ACTIVITY ACTIVITY Department Overhead costs DRIVER QTY UNIT RATE Packing $ 40,000 Units produced 4000 $ 10 Shipping $ 50,000 Number of batches 40 $ 1,250 Inspection & QC $ 120,000 Number of machine set-ups 20 $ 6,000 Shared Support Engineering $ 32,000 Machine Hours 800 $ 40 Purchasing and Receiving $ 12,000 Purchase Orders 30 $ 400 Plant Maintenance $ 12,000 Machine Hours 800 $ 15 Total $ 266,000 The following table shows units and resource consumption of the two lines in that month (Oct 2017) Car St. Wheels Truck St. Wheels Total Units Produced 2000 2000 4000 Number of batches 10 30 40 Machine Hours 300 500 800 Machine set-ups 5 15 20 Purchase Orders 10 20 30 1. If Daisy Wheel used a simple Plant Overhead rate per unit produced without differentiating activites, what would be the total plant overhead cost per unit for these six departments 2. Use Activity Based Cost Analysis to refine the Plant Overhead cost per unit, for the given activities, of Car Steering Wheels and Truck Steering Wheels 3. Briefly discuss your results, simply stating why the results using ABC differed widely from those using flat rates per produced unitExplanation / Answer
Answer 1:
Overhead Cost based on Plant Overhead Rate:
Answer 2
Overhead Rate Based on Activity Based Costing:
Answer 3
Activity based costing takes into account the number of activity driver used for each identifiable activity cost. While the Plant Overhead Rate ignores these things and simply allocated overhead cost based on number of units produced.
In our case, since truck wheels used more acitivity drivers as compared to car wheels, overhead rate of truck wheels is more in case of activity based costing.
Activity Cost Total Units Produced Overhead Rate per unit Packing 40,000 4,000 10.00 Shipping 50,000 4,000 12.50 Shared Support 1,20,000 4,000 30.00 Engineering 32,000 4,000 8.00 Purchasing and Receiving 12,000 4,000 3.00 Plant Maintenance 12,000 4,000 3.00 Total overhead rate per unit of each product 66.50Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.