Question

Whirlpool Corporation conducted an activity-based costing study of its Evansville, Indiana, plant in order to identify its most profitable products. Assume that we select three representative refrigerators (out of 333): one low-, one medium-, and one high-volume refrigerator. Additionally, we assume the following activity-base information for each of the three refrigerators:

Three Representative Refrigerators	Number of Machine Hours		Number of Setups		Number of Sales Orders		Number of Units
Refrigerator—Low Volume	50		15		45		250
Refrigerator—Medium Volume	360		14		100		1,800
Refrigerator—High Volume	960		10		150		4,800

Prior to conducting the study, the factory overhead allocation was based on a single machine hour rate. The machine hour rate was $250 per hour. After conducting the activity-based costing study, assume that three activities were used to allocate the factory overhead. The new activity rate information is assumed to be as follows:

	Machining Activity		Setup Activity		Sales Order Processing Activity
Activity rate	$240		$380		$80

a. Complete the following table, using the single machine hour rate to determine the per-unit factory overhead for each refrigerator (Column A) and the three activity-based rates to determine the activity-based factory overhead per unit (Column B). Finally, compute the percent change in per-unit allocation from the single to activity-based rate methods (Column C).

If required, round all per unit answers to the nearest cent. Round percents to one decimal place. For column C, use the minus sign to indicate a negative or decrease.

	Column A	Column B	Column C
Product Volume Class	Single Rate Overhead Allocation Per Unit	ABC Overhead Allocation Per Unit	Percent Change in Allocation
Low	$	$	%
Medium	$	$	%
High	$	$	%

Answer 1

Machine Hour rate is 250 per hour Single Rate Overhead Allocation Per unit Caln 50 12500/250 50 50 Total hours Per hr cost Total Cost Caln 250 50 Toal Unit Per Unit 50 360 960 250 250 1.800 4,800 Mediunm 250 ABC per unit rate Refrigerator Total Machine activity cost Hrper hr activity rate Total set up cost No of set up Setup activity Total Ordering cost No of orderper order costTotal Cost Cost per unit 12000 50 240 86400 360 240 230400 960 240 5700 15 380 5320 14380 3800 10 380 3600 45 80 8000 100*80 12000 150*80 21300 99720 246200 85.2 S5.4 51.3 Medium High ColumnA ColumnB ABC Overhead Allocation Per Unit Column C Single Rate Product Volume Class Ouerhead Allocation Percent Change in Per Unit Caln 704 (85.2-50)/50*100 10.8 2.6 Medium 55.4 51.3