Rockaway Company Produces Two Types of Product, Flat and Round

Essay

Rockaway Company produces two types of product, flat and round, on the same production line. For the current period, the company reports the following data.
$\begin{array}{|l|c|c|c|}\hline& \text { Flat } & \text { Round } & \text { Total }\\ \hline \text { Direct materials } & \$ 12,000 & \$ 24,000 & \$ 36,000 \\\hline \text { Direct labor } & 6,000 & 18,000 & 24,000 \\\hline \text { Overhead ( } 250 \% \text { of direct labor cost) } & 15,000 & 45,000 & 60,000 \\\hline \text { Total cost } & \$ 33,000 & \$ 87,000 & \$ 120,000 \\\hline \text { Units produced } & 10,000 & 15,000 & \\\hline \text { Average cost per unit } & \$ 3.30 & \$ 5.80 & \\\hline\end{array}$
Rockaway's controller wishes to apply activity-based costing (ABC) to allocate the $60,000 of overhead costs incurred by the two product lines to see whether cost per unit would change markedly from that reported above. She has collected the following information.
$\begin{array}{|l|l|l}\hline\text { Overhead Cost Category (Activity Cost Pool) }&\text { Cost }\\\hline \text { Supervision } & \$ 12,600 \\\hline \text { Depreciation of machinery } & 30,600 \\\hline \text { Assembly line preparation } & 16,800 \\\hline \text { Total overhead } & \$ 60,000\\\hline\end{array}$

She has also collected the following information about the cost drivers for each category (cost pool) and the amount of each driver used by the two product lines.
Assign these three overhead cost pools to each of the two products using ABC. Show each overhead cost allocation by product and the total overhead allocated to each product. Determine average cost per unit for each of the two products using ABC. (Round your answer to 2 decimal places.) Which overhead cost allocation method would you recommend to the controller?