Allocating costs with different cost driversDingle Publishing identified the following ove

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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