PART 1:
Dachshund, Inc. produces fancy, high end dog kennels and runs. They have two primary untis- a Single
model and a Multi Pet model. You are Dachshunds’ controller, and you have decided to use a plant-wide
overhead rate based on direct labor costs. The president of the company recently heard of activity-based
costing and wants to see how the results would differ if this system were used. Two activity cost pools were
developed: machining and machine setup. Presented below is information related to the company’s
operations:
Single Model Multi Pet Model
Direct labor costs $75,000 $150,000
Machine hours 2,000 2,000
Setup hours 200 800
Total estimated overhead costs are $450,000. Overhead cost allocated to the machining activity cost pool is
$270,000 and $180,000 is allocated to the machine setup activity cost pool.
IN EXCEL:
(a) Compute the overhead rate using the traditional (plantwide) approach.
(b) Compute the overhead rates using the activity-based costing approach.
(c) Determine the difference in allocation between the two approaches.
PART 2:
Dachshund, Inc. decided to implement the activity-based costing approach and was successful in its use.
However, as the controller you are wondering if instead of only two activity cost pools, they should expand
to three activity cost pools based on the following:
Single Model Multi Pet Model
Direct labor costs $75,000 $150,000
Machine hours 2,000 2,000
Setup hours 200 800
Packaging hours 50 75
The estimated overhead of $450,000 is allocated as follows: machining activity cost pool $240,000,
machine set up $170,000 and packaging $40,000.
IN EXCEL:
(D) Determine the overhead rates using the activity-based costing approach with three cost pools.
(E) Determine the overhead allocation for the single model and the multi pet model using three activity cost
pools.
WRITE A MEMO: to the president in a maximum of 500 words in which you explain:
(F) What is the difference in allocation between two activity cost pools and three activity cost pools? Is the
difference in allocation worth using the third activity cost pool?
Show your work in Excel®.
Complete calculations/computations using Excel®. Submit a separate spreadsheet-DO NOT embed it in
your memo.
I need to see your calculations. DO NOT just type numbers in- you need to set up formulas in excel. See
the week 1 tutorial.
4/8/2020