Rockaway Company Produces Two Types of Product, Flat and Round

question 18

Essay

Rockaway Company produces two types of product, flat and round, on the same production line. For the current period, the company reports the following data.
$\begin{array}{|l|c|c|c|}\hline& \text { Flat } & \text { Round } & \text { Total }\\ \hline \text { Direct materials } & \$ 12,000 & \$ 24,000 & \$ 36,000 \\\hline \text { Direct labor } & 6,000 & 18,000 & 24,000 \\\hline \text { Overhead ( } 250 \% \text { of direct labor cost) } & 15,000 & 45,000 & 60,000 \\\hline \text { Total cost } & \$ 33,000 & \$ 87,000 & \$ 120,000 \\\hline \text { Units produced } & 10,000 & 15,000 & \\\hline \text { Average cost per unit } & \$ 3.30 & \$ 5.80 & \\\hline\end{array}$
Rockaway's controller wishes to apply activity-based costing (ABC) to allocate the $60,000 of overhead costs incurred by the two product lines to see whether cost per unit would change markedly from that reported above. She has collected the following information.
$\begin{array}{|l|l|l}\hline\text { Overhead Cost Category (Activity Cost Pool) }&\text { Cost }\\\hline \text { Supervision } & \$ 12,600 \\\hline \text { Depreciation of machinery } & 30,600 \\\hline \text { Assembly line preparation } & 16,800 \\\hline \text { Total overhead } & \$ 60,000\\\hline\end{array}$

She has also collected the following information about the cost drivers for each category (cost pool) and the amount of each driver used by the two product lines.
Assign these three overhead cost pools to each of the two products using ABC. Show each overhead cost allocation by product and the total overhead allocated to each product. Determine average cost per unit for each of the two products using ABC. (Round your answer to 2 decimal places.) Which overhead cost allocation method would you recommend to the controller?

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Definitions:

Olfactory Neurons

Specialized nerve cells responsible for the sense of smell, located in the olfactory epithelium of the nasal cavity.

Mechanoreceptors

Sensory receptors that respond to mechanical pressures or distortions, such as touch, pressure, vibration, and sound.

Olfactory Epithelium

A specialized epithelial tissue inside the nasal cavity involved in the sense of smell, containing olfactory receptor cells.

Taste Buds

Sensory organs found on the tongue that are primarily involved in detecting tastes.