Type of Textbook uxe Moderate Economy Activity Cost Machine

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)

Solution

(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