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

question 84

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. $\begin{array}{|l|c|c|c|c|}\hline{\text { Cost Pool }} & \begin{array}{c}\text { Driver and } \\\text { Level }\end{array} & \begin{array}{c}\text { Estim ated } \\\text { Costs }\end{array} & \begin{array}{c}\text { Use of Driver by } \\\text { Down Pillows }\end{array} & \begin{array}{c}\text { Use of Driver by } \\\text { Foam Pillows }\end{array} \\\hline \text { Equipment setup } & 360 \text { setups } & \$ 216,000 & 120 \text { setups } & 240 \text { setups } \\\hline \begin{array}{l}\text { Materials } \\\text { ordering }\end{array} & 6,000 \text { orders } & \$ 60,000 & 2,400 \text { orders } & 3,600 \text { orders } \\\hline \text { Quality control } & \begin{array}{c}2,000 \\\text { inspections }\end{array} & \$ 36,000 & 800 \text { inspections } & 1,200 \text { inspections } \\\hline \text { Machining } & \begin{array}{c}8,000 \\\text { machine } \\\text { hours }\end{array} & \$ 86,800 & \begin{array}{c}4,200 \text { machine } \\\text { hours }\end{array} & \begin{array}{c}3,800 \text { machine } \\\text { hours }\end{array} \\\hline\end{array}$ 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:

Business Trust

A form of business organization, created by a written trust agreement, that resembles a corporation. Legal ownership and management of the trust’s property stay with the trustees, and the profits are distributed to the beneficiaries, who have limited liability.

Personally Liable

When an individual is personally responsible for fulfilling a debt or legal obligation, risking personal assets beyond a corporate structure.

Partnership

A bona fide business arrangement that includes two or more individuals managing together and sharing earnings.

Joint Venture

A joint undertaking by two or more persons or business entities to combine their efforts or their property for a single transaction or project, or for a related series of transactions or projects. A joint venture is generally treated like a partnership for tax and other legal purposes.