EXERCISE : Ricoh Printing Company is the publisher for many of the local newspapers and magazines. They publish nine periodicals and several other types of literature, including handouts and pamphlets.

They have recently adopted an activity-based costing system to assign manufacturing overhead to products.

The following data relate to one oftheir products, The Rich Weekly, and the ABCcost pools :

The Rioch Weekly:

Anual Production 20,000 units

Direct material per unit  $31

Direct labor per unit   $6

Manifacturing overhead Cost pools :

Cost Pool                                 All Products                             The Ricoh Weekly

Materials ordering                      100,000 orders                                 1,000

Materials inspection                    2,000 receiving reports                       300

Equipment setup                        100 setups                                        1

Quality control                          4,000 inspections                                 400

Other                                      $10,000,000 direct labor                        $120,000

Required:

a. Calculate the overhead rate per unit of activity for each of the five cost pools.

b. Calculate the total overhead assigned to the production of The Ricoh Weekly.

c. Calculate the overhead cost per unit for The Ricoh Weekly.

d. Calculate the total unit cost for The Ricoh Weekly.

e. Suppose that Ricoh Printing allocates overhead by a traditional production volume-based method using direct labor dollars as the allocation base and one cost pool.

Determine the overhead rate per direct labor dollar and the per unit overhead assigned to The Ricoh Weekly.

Discuss the difference in cost allocations between the traditional method and the activity-based costing approach.