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Question - Multiple Versus Single Overhead Rates, Activity Drivers - Deoro Company has identified the following overhead activities, costs, and activity drivers for the coming year:
Activity
Expected Cost
Activity Driver
Activity Capacity
Setting up equipment
$496,000
Number of setups
620
Ordering costs
332,000
Number of orders
16,600
Machine costs
910,800
Machine hours
41,400
Receiving
395,900
Receiving hours
10,700
Deoro produces two models of dishwashers with the following expected prime costs and activity demands:
Model A
Model B
Direct materials
$606,000
$789,000
Direct labor
478,000
480,000
Units completed
15,500
8,500
Direct labor hours
6,400
2,200
430
190
5,200
11,400
23,900
17,500
3,400
7,300
The company's normal activity is 8,600 direct labor hours.
Required -
1. Determine the unit cost for each model using direct labor hours to apply overhead.
2. Determine the unit cost for each model using the four activity drivers.
3. Which method produces the more accurate cost assignment?
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