Allocating costs with different cost driversDingle Publishing identified the following ove
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Allocating costs with different cost drivers
Dingle Publishing identified the following overhead activities, their respective costs, and their cost drivers to produce the three types of textbooks the company publishes.
Type of Textbook
Activity (Cost)
Cost Driver
Deluxe
Moderate
Economy
Machine maintenance ($240,000)
Number of machine hours
250
750
1,000
Setups ($420,000)
Number of setups
30
15
5
Packing ($108,000)
Number of cartons
10
30
50
Photo development ($336,000)
Number of pictures
4,000
2,000
1,000
Deluxe textbooks are made with the finest-quality paper, six-color printing, and many photographs.
Moderate texts are made with three colors and a few photographs spread throughout each chapter. Economy books are printed in black and white and include pictures only in chapter openings.
Required
a. Dingle currently allocates all overhead costs based on machine hours. The company produced the following number of books during the prior year.
Deluxe
Moderate
Economy
50,000
150,000
200,000
Determine the overhead cost per book for each book type.
b. Determine the overhead cost per book, assuming that the volume-based allocation system described in Requirement a is replaced with an activity-based costing system.
c. Explain why the per unit overhead costs determined in Requirements a and b differ.
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