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# Divine Cheesecake Shoppe: overhead rate, total unit cost

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Activity-Based Costing

The Divine Cheesecake Shoppe is a national bakery that is known for its strawberry cheesecake. They also make 12 different kinds of cheesecake as well as several other types of bakery items. They have recently adopted an activity-based costing system to assign manufacturing overhead to products. The following data relate to their strawberry cheesecake and the ABC cost pools:

Strawberry Cheesecake:
Annual production 40,000 units
Direct materials per unit \$5
Direct labor per unit \$2

Cost Pool Cost Cost Driver
Materials ordering \$67,500 Number of purchase orders
Materials inspection 77,000 Number of receiving reports
Equipment setup 74,000 Number of setups
Quality control 44,000 Number of inspections
Other 75,000 Direct labor cost
Total mfg. overhead \$337,500

Annual activity information related to cost drivers:

Cost Pool All Products Strawberry Cheesecake
Materials ordering 7,500 orders 2,100
Materials inspection 400 receiving reports 60
Equipment setup 2,000 setups 24
Quality control 2,000 inspections 120
Other \$1,500,000 direct \$26,600
labor

Required

Calculate the overhead rate per unit of activity for each of the five cost pools. (Round answer to 2 decimal places. Be sure to use leading zeros in your answer, for example, .78 should be 0.78.)

Cost Pools Overhead Rate
Material Ordering \$ Per Order
Material Inspection \$ Per Receiving Order
Equipment Setup \$ Per Setup
Quality Control \$ Per Inspection
Other \$ Per Direct Labor Cost

Calculate the total overhead assigned to the production of the Strawberry Cheesecake.
Total overhead \$

Calculate the overhead cost per unit for the Strawberry Cheesecake. (Round answers to 2 decimal places. Be sure to use leading zeros in your answer, for example, .78 should be 0.78.)
Overhead cost per unit \$

Calculate the total unit cost for the Strawberry Cheesecake. (Round answers to 2 decimal places.)
Total unit costs \$

Determine the overhead rate per direct labor dollar and the per unit overhead assigned to the Strawberry Cheesecake. (Round answers to 2 decimal places. Be sure to use leading zeros in your answer, for example, .78 should be 0.78.)
Overhead rate per direct labor dollar \$
Overhead assigned per unit \$

Suppose that The Divine Cheesecake Shoppe allocates overhead by a traditional production volume-based method using direct labor dollars as the allocation base and one cost pool.

Discuss the difference in cost allocations between the traditional method and the activity-based costing approach.

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#### Solution Summary

Activity-based costing is examined for Divine Cheesecake Shoppe.

\$2.49