Problem
Sheridan Publishing identified the following overhead activities, their respective costs, and their cost drivers to produce the three types of textbooks the company publishes. Type of Textbook Activity (Cost) Cost Driver Deluxe Moderate Economy Machine maintenance ($380,000) Number of machine hours 380 1,140 1,520 Setups ($680,000) Number of setups 25 15 10 Packing ($176,000) Number of cartons 15 35 50 Photo development ($740,000) Number of pictures 5,000 3,000 2,000 Deluxe textbooks are made with the finest-quality paper, six-color printing, and many photographs. Moderate texts are made with three colors and a few photographs spread throughout each chapter. Economy books are printed in black and white and include pictures only in chapter openings. Required Sheridan currently allocates all overhead costs based on machine hours. The company produced the following number of books during the prior year: Deluxe Moderate Economy 50,000 150,000 200,000.
Determine the overhead cost per book for each book type.
Determine the overhead cost per book, assuming that the volume-based allocation system described in Requirement a is replaced with an activity-based costing system.