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 using ABC?
A)$10.56 per foam pillow
B)$26.00 per foam pillow
C)$13.49 per foam pillow
D)$50.00 per foam pillow

Question

Quizplus · Accepted Answer

To calculate the overhead cost for each foam pillow using Activity-Based Costing (ABC), we first allocate the estimated costs to each type of pillow based on their use of the cost drivers. Then, we divide the total allocated cost for foam pillows by the number of foam pillows produced.1. Equipment setup: $\$216,000 / 360 \text{ setups} = \$600 \text{ per setup}$. Foam pillows use 240 setups, so $\$600 \times 240 = \$144,000$.2. Materials ordering: $\$60,000 / 6,000 \text{ orders} = \$10 \text{ per order}$. Foam pillows have 3,600 orders, so $\$10 \times 3,600 = \$36,000$.3. Quality control: $\$36,000 / 2,000 \text{ inspections} = \$18 \text{ per inspection}$. Foam pillows undergo 1,200 inspections, so $\$18 \times 1,200 = \$21,600$.4. Machining: $\$86,800 / 8,000 \text{ machine hours} = \$10.85 \text{ per machine hour}$. Foam pillows use 3,800 machine hours, so $\$10.85 \times 3,800 = \$41,230$.Total overhead cost for foam pillows = \$144,000 + \$36,000 + \$21,600 + \$41,230 = \$242,830.Overhead cost per foam pillow = \$242,830 / 18,000 foam pillows = \$13.49 per foam pillow.

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