The Divine Cheesecake Shoppe is a national bakery that is known for its strawber

Question

The Divine Cheesecake Shoppe is a national bakery that is known for its strawberry cheesecake. It also makes 12 different kinds of cheesecake as well as many other bakery items. It has recently adopted an activity-based costing system to assign manufacturing overhead to products. The following data relate to its strawberry cheesecake and the ABC cost pools:

Strawberry Cheesecake
Annual Production: 18,100 units
Direct materials cost per unit: $6
Direct labor per unit: $4

Cost Pool                    Cost              Cost Driver
Materials ordering      $120,400      Number of purchase orders
Materials inspection    $77,140       Number of receiving reports
Equipment setup        $148,200      Number of setups
Quality Control           $94,500       Number of inspections
Other                        $180,630      Direct labor cost

Annual activity information related to cost drivers:

Cost Pool                           All Products               Strawberry Cheesecake
Materials ordering               8,600 orders                      100
Materials inspection             380 receiving reports           62
Equipment setup                3,800 setups                        32
Quality Control                  3,500 inspections                 151
Other                              $2,007,000 direct labor          $72,400

Calculate the overhead rate per unit of activity for each of the five cost pools:

Materials ordering: $               per order
Materials inspection: $             per receiving report
Equipment Setup: $                 per setup
Quality Control: $                    per inspection
Other: $                                 per direct labor cost

Calculate the total overhead assigned to the production of strawberry cheesecake: $

Calculate the overhead cost per unit for the strawberry cheesecake: $

Calculate the total unit cost for the strawberry cheesecake: $

Suppose that the Divine Cheesecake Shoppe allocates overhead by a traditional production volume-based method using direct labor dollars as the allocation base and one cost pool. Determine the overhead rate per direct labor dollar and the per unit overhead assigned to the strawberry cheesecake:

Overhead rate per direct labor dollar: $
Overhead assigned per unit: $

Explanation / Answer

Calculate the overhead rate per unit of activity for each of the five cost pools:

Materials ordering:     $14     per order ($120,400 / 8,600)
Materials inspection: $203    per receiving report ($77,140 / 380)
Equipment Setup:       $39    per setup ($148,200 / 3,800)
Quality Control:          $27    per inspection($94,500 / 3,500)
Other:                       $0.09 per direct labor cost($180,630 / $2,007,000)

Calculate the total overhead assigned to the production of strawberry cheesecake: $

Materials ordering:       $14 x 100        =     $1,400
Materials inspection:   $203 x 62         =   $12,586   
Equipment Setup:         $39 x 32          =     $1,248   
Quality Control:            $27 x 151        =     $4,077
Other:                       $0.09 x $72,400 =     $6,516  
Total overhead assigned                        $25,827
                                                            =========
Overhead cost per unit = $25,827 / 18,100 = $1.43

Calculate the total unit cost for the strawberry cheesecake: $11.43
DM $6 + DL $4 + OH $1.43

Suppose that the Divine Cheesecake Shoppe allocates overhead by a traditional production volume-based method using direct labor dollars as the allocation base and one cost pool. Determine the overhead rate per direct labor dollar and the per unit overhead assigned to the strawberry cheesecake:

Overhead rate per direct labor dollar: $0.31
($120,400+$77,140+$148,200+$94,500+$180,630) / $2,007,000
$620,870/$2,007,000 = $0.31

Overhead assigned per unit: $1.24
Total overhead assigned = $72,400 x $0.31 = $22,444
Overhead assigned per unit = $22,444 / 18,100 = $1.24

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