Accounting Information Systems 8th Edition by James Hall

Exercise 57

ACTIVITY DRIVERS
Cut It Up, Inc., is a manufacturer of wooden cutting boards that are sold through a chain of kitchen stores. For years, the company has allocated overhead based on total machine hours. A recent assessment of overhead costs has shown that these costs are now in excess of 40 percent of the company's total costs. As an attempt to better control overhead, Cut It Up is adopting an activity-based costing system. Each cutting board goes through the following processes:
a. Cutting-Boards are selected from inventory and are cut to the required width and length. Imperfections in boards (such as knots or cracks) are identified and removed.
b. Assembly-Cut wooden pieces are laid out on clamps, a layer of glue is applied to each piece, and the glued pieces are clamped together until the glue sets.
c. Shaping-Once the glue has set, the boards are sent to the shaping process, where they are cut into specific shapes.
d. Sanding-After being shaped, the cutting boards must be sanded smooth.
e. Finishing-Sanded cutting boards receive a coat of mineral oil to help preserve the wood.
f. Packing-Finished cutting boards are placed in boxes of 12. The boxes are sealed, addressed, and sent to one of the kitchen stores.
Required
What do you suppose are components of overhead for this company? Determine a logical cost driver for each process.