Downhill Pty Ltd. manufactures snow skis and snow boards. Overhead costs are currently allocated using a plantwide overhead rate based on direct labour hours, but the company is contemplating a shift to activity-based costing for overhead. The following data relate to 2009:
Downhill Pty Ltd
Budgeted Overhead Costs for 2009
Activity drivers consumed
Activity Activity driver Activity cost Pool Snow Skis Snow Boards
Production setup Number of setups $200,000 40 60
Material handling Number of moves $40,000 72 144
Product inspection Units completed $120,000 180,000 300,0000
The budgeted level of direct labour hours for 2009 is 240,000 hours.
A. Calculate the plantwide overhead rate for 2009. What is the total overhead cost that would be applied to snow skis and snow boards in 2009, assuming that 60,000 direct labour hours were worked on snow skis and 180,000 direct labour hours were worked on snow boards?
B. Calculate the overhead cost per unit of the snow skis and snow boards for 2009, using the plantwide overhead rate.
C. Calculate cost per unit of activity driver for 2009, for the activities 'Production setup', 'material handling' and 'Product inspection'.
D. Using activity-based costing calculate the total estimated overhead cost and the overhead cost per unit of the snow skis and snow boards for 2009.
The attached MS Excel spreadsheet contains detailed instructions for the determination of overhead costs for the Downhill Pty. Ltd. exercise, utilizing activity based costing.