# College Supply Company (CSC) makes three types of drinking glasses: short, medium, and tall. It presently...

###### Question:

College Supply Company (CSC) makes three types of drinking glasses: short, medium, and tall. It presently applies overhead using a predetermined rate based on direct labor-hours. A group of company employees recommended that CSC switch to activity-based costing and identified the following activities, cost drivers, estimated costs, and estimated cost driver units for Year 5 for each activity center.

 Activity Recommended Cost Driver Estimated Cost Estimated Cost Driver Units Setting up production Number of production runs $33,600 120 runs Processing orders Number of orders 48,000 200 orders Handling materials Pounds of materials 18,000 9,000 pounds Using machines Machine-hours 40,000 8,000 hours Providing quality management Number of inspections 48,000 40 inspections Packing and shipping Units shipped 40,000 20,000 units$ 227,600

In addition, management estimated 2,000 direct labor-hours for year 5.

Assume that the following cost driver volumes occurred in February, year 5.

 Short Medium Tall Number of units produced 1,100 500 300 Direct materials costs $4,000$ 2,000 $1,500 Direct labor-hours 110 130 120 Number of orders 8 9 5 Number of production runs 3 4 8 Pounds of material 500 800 100 Machine-hours 400 200 300 Number of inspections 2 2 1 Units shipped 1,100 500 200 Direct labor costs were$20 per hour.

Required:

a. Compute a predetermined overhead rate for year 5 for each cost driver recommended by the employees. Also compute a predetermined rate using direct labor-hours as the allocation base.
b. Compute the production costs for each product for February using direct labor-hours as the allocation base and the predetermined rate computed in requirement a.
c. Compute the production costs for each product for February using the cost drivers recommended by the employees and the predetermined rates computed in requirement a. (Note: Do not assume that total overhead applied to products in February will be the same for activity-based costing as it was for the labor-hour-based allocation.)

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