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Multiple Cost Drivers

Newman's Own manufactures a variety of specialty salad dressings. Production runs are both high$-$

volume and low$-$volume activities, depending on customer orders. Assume the following represents

general manufacturing costs $($manufacturing overhead$)$ and each cost$\text{'}$s related activity cost driver for

Newman's Own.

The lime vinaigrette dressing required $1,000$ machine hours to fill $60$ customer orders for a total of

$4,000$ cases.

Required

a$.$ Assuming all manufacturing overhead is estimated and predicted on the basis of machine hours,

determine the predicted total overhead costs to produce the $4,000$ cases of lime vinaigrette.

b$.$ Assuming manufacturing overhead is estimated and predicted using separate rates for machine

hours, customer orders, and products $($a multiple$-$level cost hierarchy$),$ determine the predicted total

overhead costs to produce the $4,000$ cases of lime vinaigrette.

c$.$ Calculate the error in predicting manufacturing overhead using machine hours versus using multiple

cost drivers. Indicate whether the use of only machine hours results in overpredicting or underpre$-$

dicting the costs to produce $4,000$ cases of lime vinaigrette.

d$.$ Looking just at batch level costs, calculate the error in predicting those costs using machine hours

versus using customer orders. Indicate whether the use of only machine hours results in overpredict$-$

ing or underpredicting the batch$-$level costs to produce $4,000$ cases of lime vinaigrette.

$e.$ Looking just at product$-$level costs, calculate the error in predicting those costs using machine hours

versus using number of products. Indicate whether the use of only machine hours results in overpre$-$

dicting or underpredicting the product$-$level costs to produce $4,000$ cases of lime vinaigrette.

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