Multiple Versus Single Overhead Rates, Activity Drivers

Deoro Company has identified the following overhead activities, costs, and activity drivers for the coming year: Activity Expected Cost Activity Driver Activity Capacity Setting up equipment $517,760 Number of setups 640 Ordering costs 384,300 Number of orders 18,300 Machine costs 717,400 Machine hours 42,200 Receiving 391,300 Receiving hours 9,100

Deoro produces two models of dishwashers with the following expected prime costs and activity demands: Model A Model B Direct materials $638,000 $845,000 Direct labor $475,000 $450,000 Units completed 16,200 7,500 Direct labor hours 6,700 2,400 Number of setups 420 220 Number of orders 6,300 12,000 Machine hours 23,400 18,800 Receiving hours 2,000 7,100

The company's normal activity is 9,100 direct labor hours.

Required:

1. Determine the unit cost for each model using direct labor hours to apply overhead. Round intermediate calculations and final answers to nearest cent. Unit Cost Model A $ Model B $

2. Determine the unit cost for each model using the four activity drivers. Round your answers to nearest cent. Unit Cost Model A $ Model B $

3. Which method produces the more accurate cost assignment?
Four activity drivers

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