Rather Bedding Makes Two Types of Pillow-Down and Foam What Is the Overhead Cost for Each Foam Pillow When

question 147

Multiple Choice

Rather Bedding makes two types of pillow-down and foam. It is currently implementing an activity-based costing system. In the past, all overhead had been applied on the basis of machine hours. The company produces 6,000 down pillows and 18,000 foam pillows per year.
$\begin{array}{|l|c|c|c|c|}\hline\text { Cost Pool } & \begin{array}{c}\text { Driver and } \\\text { Level }\end{array} & \begin{array}{c}\text { Estimated } \\\text { Costs }\end{array} & \begin{array}{c}\text { Use of Driver by } \\\text { Down Pillows }\end{array} & \begin{array}{c}\text { Use of Driver by } \\\text { Foam Pillows }\end{array} \\\hline \text { Equiument setup } & 360 \text { setups } & \$ 216,000 & 120 \text { setups } & 240 \text { setups } \\\hline \text { Materials ordering } & 6,000 \text { orders } & \$ 60,000 & 2,400 \text { orders } & 3,600 \text { orders } \\\hline \text { Quality control }&2,000\text { inspections }&\$ 36,000 & 800 \text { inspections } & 1,200 \text { inspections }\\\hline \text { Machining }&\text { 8,000 machine hours }&\$86,000&\text { 4,200 machine hours }&\text { 3,800 machine hours }\\\hline\end{array}$
What is the overhead cost for each foam pillow when all overhead is applied based on machine hours?

• A) $10.52 per foam pillow
• B) $638.85 per foam pillow
• C) $49.85 per foam pillow
• D) $20.67 per foam pillow

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Definitions:

Unit Variable Cost (UVC)

Variable cost expressed on a per unit basis for a product.

Variable Cost (VC)

The sum of the expenses of the firm that vary directly with the quantity of a product that is produced and sold.

Variable Cost

Costs that change in proportion to the level of production or sales activity, such as raw materials or labor expenses.

Total Cost

The sum of all expenses incurred in the production and delivery of a product or service, including fixed and variable costs.