E7-39 Comparing ABC and Plantwide Overhead Cost Assigments

The Sabroso Chocolate Company uses activity-based costing (ABC). The controller identified
two activities and their budgeted costs:

Setting up equiptment $ 270,000

Other overhead $ 900,000
$ 1,170,000
Setting up equipment is based on setup hours, and other overhead is based on oven hours.
Oscuro produces two products, Fudge and Cookies. Information on each product is as follows:

Fudge Cookies Total

Units produced 5000 25000 30000
Setup hours 4000 1000 5000
Oven hours 1000 5000 6000

Required:
1. Calculate the activity rate for (a) setting up equipment and (b) other overhead.
Activity
Fudge Cookies Driver Cost rate
a. setting up equipment 0.80 0.20 Setup hours $ 54

b. Other overhead 0.17 0.83 Oven hours $ 150

2. How much total overhead is assigned to Fudge using ABC?

Overhead cost:
Setting up equipment =0,80 x $270.000 $ 216,000
Other Overhead =0,17 x $900.000 $ 150,000
Total overhead: $ 366,000

3. What is the unit overhead assigned to Fudge using ABC?

overhead cost:
Setting up equipment =0,80 x $270.000 $ 216,000
Other Overhead =0,17 x $900.000 $ 150,000
Total overhead: $ 366,000
Units produced: 5000
Unit Cost: $ 73.20

4. Now, ignoring the ABC results, calculate the plantwide overhead rate, based on oven hours.

Plantwide overhead rate: $1.170.000/6000 oven hours $ 195

5. How much total overhead is assigned to Fudge using the plantwide overhead rate?
overhead rate fudge:
=$195 x 4000 setup hours $ 780,000
= $195 x 1000 oven hours $ 195,000
Total overhead is assigned to fudge $ 975,000

6. CONCEPTUAL CONNECTION Explain why the total overhead assigned to Fudge is differ-
ent under the ABC system (i.e., using the activity rates) than under the nonABC system
(i.e., using the plantwide rate).

kenapa total overhead berbeda saat menggunakan ABC sistem (activity rate) dengan non-ABC sistem
(plantwide), karena disini activity rate lebih teliti dalam setiap penulusuran biayanya, dimana BOP
dibebankan ke setiap jenis produk fudge. Sedangkan plantwide hanya menelusuri berdasarkan oven hours
atau lebih fokus pada biaya bahan baku atau tenaga kerja langsung saja.
pembebanan biaya menggunakan plantwide lebih besar dibanding activity rate.
dimana plantwide sebesar $975.000 dan activity rate sebesar $366.000. Pembebanan menggunakan
activity rate lebih sedikit/lebih rendah dibandingkan menggunakan plantwide

E7-40 Activity-Based Product Costing

Suppose that a surgical ward has gathered the following information for four nursing activities
and two types of patients:

Patient Category
Patient Category Activity Rate
Driver Normal Intensive
Treating patients Treatments 6400 8000 $ 4.00
Providing hygienic care Hygienic hours 4800 17600 $ 5.00
Responding to requests Request 32000 80000 $ 2.00
Monitoring patients Monitoring hours 6000 72000 $ 3.00

Required:
1. Determine the total nursing costs assigned to each patient category.

Patient Category Activity Cost per patient Category Total cost

Patient Category patient
Rate category
Normal Intensive Normal Intensive
Treating patients 6400 8000 $ 4.00 $ 25,600 $ 32,000 $ 57,600
Providing hygienic care 4800 17600 $ 5.00 $ 24,000 $ 88,000 $ 112,000
Responding to requests 32000 80000 $ 2.00 $ 64,000 $ 160,000 $ 224,000
Monitoring patients 6000 72000 $ 3.00 $ 18,000 $ 216,000 $ 234,000
Total cost for nursing activities $ 627,600

2. Output is measured in patient days. Assuming that the normal patient category uses 8,000
patient days and the intensive patient category uses 6,400 patient days, calculate the nursing
cost per patient day for each type of patient.

Total cost for nursing activities $ 627,600

Assuming Cost
Normal patient category 8000 $ 78.45 per patient days
Intensive patient category 6400 $ 98.06 per patient days