EXERCISE : Ricoh Printing Company is the publisher for many of the local newspapers and magazines. They publish nine periodicals and several other types of literature, including handouts and pamphlets.
They have recently adopted an activity-based costing system to assign manufacturing overhead to products.
The following data relate to one oftheir products, The Rich Weekly, and the ABCcost pools :
The Rioch Weekly:
Anual Production 20,000 units
Direct material per unit $31
Direct labor per unit $6
Manifacturing overhead Cost pools :
Cost Pool All Products The Ricoh Weekly
Materials ordering 100,000 orders 1,000
Materials inspection 2,000 receiving reports 300
Equipment setup 100 setups 1
Quality control 4,000 inspections 400
Other $10,000,000 direct labor $120,000
Required:
a. Calculate the overhead rate per unit of activity for each of the five cost pools.
b. Calculate the total overhead assigned to the production of The Ricoh Weekly.
c. Calculate the overhead cost per unit for The Ricoh Weekly.
d. Calculate the total unit cost for The Ricoh Weekly.
e. Suppose that Ricoh Printing allocates overhead by a traditional production volume-based method using direct labor dollars as the allocation base and one cost pool.
Determine the overhead rate per direct labor dollar and the per unit overhead assigned to The Ricoh Weekly.
Discuss the difference in cost allocations between the traditional method and the activity-based costing approach.