SOLUTION
Chapter 4 Waterways Continuing Problem
WCP4 Activity-Based Costing
(a) These answers are examples of possible cost drivers. Not all possible answers have
been given.
Assembling—number of parts
Billing—number of billings sent
Digging trenches—machine hours or labor costs
Janitorial—cost per square feet maintained
Machine maintenance—number of maintenance hours
(b)
WATERWAYS CORPORATION
Expected
Activity-
Use of
Based
Actual
Activity Cost
Estimated
Cost Drivers
Overhead
Use of
Pools
Cost Drivers
Overhead
per Activity
Rates
Drivers
Irrigation
installation
Labor cost
$1,998,432
12,960
$154.20
12,941
Machining (all
machine use)
Machine hours
1,670,400
33,408,000
0.05
33,409,000
Customer orders
Number of orders
30,636
2,553
12.00
2,520
Design
Cost per design
820
(c)
Testing of products—batch or unit if all
items are tested
Designing new products—product
Advertising—product
Equipment set up—batch
Electricity required to run equipment—
(d) (1) If Waterways is better able to control its overhead costs, it may be worth the time
and initial costs required to set up and use ABC. Waterways does have a large
variety of items that are manufactured. However, the items manufactured do not
differ greatly in terms of the complexity of production. If, however, the cost savings
(2) The use of ABC may allow managers to see what is actually driving the highest
costs and better manage these costs, particularly those that are not value-added