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### Waves Galore 57500

Price: \$2.50

Waves Galore, Inc. manufactures hair curlers and blow-dryers. The handheld
hair curler is Waves Galore’s high volume product (80,000 units annually). It is a “large
barrel,” 20-watt, triple-heat appliance designed to appeal to the teenage market segment
with its glow-in-the-dark handle. The handheld blow-dryer is Waves Galore’s lower-volume
product (40,000 units annually). It is a three-speed, 2,000 watt appliance with a “cool setting”
and a removable filter. It also is designed for the teen market.

Both products require one hour of direct labor for completion. Therefore, total
annual direct labor hours are 120,000, (80,000 40,000). Expected annual manufacturing
overhead is \$438,000. Thus, the predetermined overhead rate is \$3.65 per direct
labor hour. The direct materials cost per unit is \$5.25 for the hair curler and \$9.75
for the blow-dryer. The direct labor cost is \$8.00 per unit for the hair curler and the
blow-dryer.

Waves Galore purchases most of the parts from suppliers and assembles the finished
product at its Fargo, North Dakota plant. It recently adopted activity-based costing, which
after this year-end will totally replace its traditional direct labor-based cost accounting
system. Waves Galore has identified the following six activity cost pools and related cost
drivers and has assembled the following information.

Instructions
(a) Under traditional product costing, compute the total unit cost of each product. Prepare
a simple comparative schedule of the individual costs by product (similar to Illustration
4-4).
(b) Under ABC, prepare a schedule showing the computations of the activity-based overhead
rates (per cost driver).
(c) Prepare a schedule assigning each activity’s overhead cost pool to each product based
on the use of cost drivers. (Include a computation of overhead cost per unit, rounding
to the nearest cent.)
(d) Compute the total cost per unit for each product under ABC.
(e) Classify each of the activities as a value-added activity or a non-value-added activity.