Dachshund 4 Production Costs Part 1 Dachshund Inc Data Pr

Question

Dachshundwk 4 Production Costspart 1 Dachshund, Inc, Data provided

Compute the overhead rate using the traditional (plantwide) approach. Overhead rate = estimated overhead cost / direct labor costs. Total estimated overhead cost is $450,000, and total direct labor cost is $225,000. Therefore, the traditional overhead rate = $450,000 / $225,000 = $2.

Compute the overhead rate using the activity-based costing approach. Using the first set of data, the activity pools are machine activity with $270,000 and setup activity with $180,000. The total activity drivers are 4,125 machine hours plus setup hours. The activity cost per driver for machine activity = $270,000 / 4,125 = $65.45 (approximate), and for setup activity = $180,000 / 1,200 setup hours = $150. Therefore, the activity-based overhead cost per activity driver are $65.45 for machine hours and $150 for setup hours.

Determine the difference in allocation between the two approaches. Under the traditional approach, the overhead allocated to each model is based on direct labor costs, resulting in $150,000 for the Single Model and $300,000 for the Multi Pet Model, totaling $450,000.

Using activity-based costing, overhead is allocated by assigning costs based on activity drivers. For the first set of data, the machine activity cost for each model is 2,000 machine hours x $65.45 = $130,900, and setup activity costs are allocated based on setup hours (assumed from data). The total overhead allocation for the Single Model is $171,000, and for the Multi Pet Model is $279,000, leading to a difference of -$21,000 for the Single Model and +$21,000 for the Multi Pet Model, indicating traditional methods underestimate costs for the Multi Pet model and overestimate for the Single Model.

In the second part, with three activity cost pools—machine, setup, and packaging—the total overhead cost pool is $450,000. The activity rates per driver are computed as $60 for machine hours, $170 for setup hours, and $320 for packaging hours, based on total activity drivers 4,125 machine hours, setup hours, and packaging hours.

Overhead allocation using the three activity pools assigns $120,000 each for machine activity (2,000 hours x $60), $136,000 for setup (assumed setup hours x $170), and $40,000 for packaging (50 and 75 hours respectively at $320 each). The total overhead for each model remains consistent with previous calculations, with overlapping totals of approximately $170,000 for the Single Model and $280,000 for the Multi Pet Model.

Comparing the two approaches, the total overhead allocation differs by about $1,000 between using two activity pools and three activity pools, which is minimal. It suggests that expanding to three activity pools does not significantly alter the overhead distribution. Therefore, the additional complexity and cost of implementing a third activity pool may not justify the marginal benefits in accuracy.

Dr. Jack HW Helper · Accepted Answer

Dachshundwk 4 Production Costspart 1 Dachshund, Inc, Data provided

Compute the overhead rate using the traditional (plantwide) approach. Overhead rate = estimated overhead cost / direct labor costs. Total estimated overhead cost is $450,000, and total direct labor cost is $225,000. Therefore, the traditional overhead rate = $450,000 / $225,000 = $2.

Compute the overhead rate using the activity-based costing approach. Using the first set of data, the activity pools are machine activity with $270,000 and setup activity with $180,000. The total activity drivers are 4,125 machine hours plus setup hours. The activity cost per driver for machine activity = $270,000 / 4,125 = $65.45 (approximate), and for setup activity = $180,000 / 1,200 setup hours = $150. Therefore, the activity-based overhead cost per activity driver are $65.45 for machine hours and $150 for setup hours.

Determine the difference in allocation between the two approaches. Under the traditional approach, the overhead allocated to each model is based on direct labor costs, resulting in $150,000 for the Single Model and $300,000 for the Multi Pet Model, totaling $450,000.

Using activity-based costing, overhead is allocated by assigning costs based on activity drivers. For the first set of data, the machine activity cost for each model is 2,000 machine hours x $65.45 = $130,900, and setup activity costs are allocated based on setup hours (assumed from data). The total overhead allocation for the Single Model is $171,000, and for the Multi Pet Model is $279,000, leading to a difference of -$21,000 for the Single Model and +$21,000 for the Multi Pet Model, indicating traditional methods underestimate costs for the Multi Pet model and overestimate for the Single Model.

In the second part, with three activity cost pools—machine, setup, and packaging—the total overhead cost pool is $450,000. The activity rates per driver are computed as $60 for machine hours, $170 for setup hours, and $320 for packaging hours, based on total activity drivers 4,125 machine hours, setup hours, and packaging hours.

Overhead allocation using the three activity pools assigns $120,000 each for machine activity (2,000 hours x $60), $136,000 for setup (assumed setup hours x $170), and $40,000 for packaging (50 and 75 hours respectively at $320 each). The total overhead for each model remains consistent with previous calculations, with overlapping totals of approximately $170,000 for the Single Model and $280,000 for the Multi Pet Model.

Comparing the two approaches, the total overhead allocation differs by about $1,000 between using two activity pools and three activity pools, which is minimal. It suggests that expanding to three activity pools does not significantly alter the overhead distribution. Therefore, the additional complexity and cost of implementing a third activity pool may not justify the marginal benefits in accuracy.

Dachshundwk 4 Production Costspart 1 Dachshund, Inc, Data provided

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