Reference 05-16
Washie Manufactures Two Types of Products for Washing

Reference 05-16
Washie manufactures two types of products for washing vehicles: the washing mitt, and the polishing cloth. Up to this point, Washie has been utilizing traditional costing with one plant-wide overhead rate using machine hours as the allocation base. The company has been receiving complaints that the polishing mitt seems over-priced. Management is wondering if there's merit to this claim since the washing mitt is a more complex product
compared to the polishing cloth. As such, management has gathered information on the potential activity areas to be used. $\begin{array}{|l|l|l|}\hline \text { Activity } & \text { Activity Measure } & \begin{array}{l}\text { Estimated } \\\text { Manufacturing } \\\text { Overhead Cost }\end{array} \\\hline \text { Design } & \text { Design hours } & \$ 12,000 \\\hline \text { Setups } & \text { Number of set-ups } & 40,000 \\\hline \text { Materials Handling } & \text { Meters of fabric } & 30,000 \\\hline \text { Production } & \text { Machine Hours } & 250,000 \\\hline\end{array}$
The company expected has determined the expected activity for each of the product lines:
During the year, the company sold 100,000 washing mitts and 50,000 polishing cloths. Direct costs are $\$ 8.00$ for washing mitts and $\$ 2.00$ for polishing costs.
$\begin{array}{|l|l|l|}\hline \text { Activity Measure } & \text { Washing Mitt } & \text { Polishing Cloth } \\\hline \# \text { of design hours } & 50 & 5 \\\hline \# \text { of setups } & 30 & 20 \\\hline \# \text { of meters of fabric } & 4,000 & 1,000 \\\hline \# \text { of machine hours } & 40,000 & 10,000 \\\hline\end{array}$
-Compute the activity rate for Materials Handling using activity based costing.

A) $30.00
B) $6.00
C) $6.64
D) $7.50