Activity-Based Costing, Reducing the Number of Drivers and Equal
Accuracy
Reducir, Inc., produces two different types of hydraulic
cylinders. Reducir produces a major subassembly for the cylinders
in the Cutting and Welding Department. Other parts and the
subassembly are then assembled in the Assembly Department. The
activities, expected costs, and drivers associated with these two
manufacturing processes are given below.
| Process |
Activity |
Cost |
Activity Driver |
Expected Quantity |
| Cutting and Welding |
Welding |
$ 776,000 |
Welding hours |
4,000 |
|
Machining |
450,000 |
Machine hours |
10,000 |
|
Inspecting |
448,250 |
No. of inspections |
1,000 |
|
Materials handling |
300,000 |
No. of batches |
12,000 |
|
Setups |
240,000 |
No. of setups |
100 |
|
|
$2,214,250 |
|
|
| Assembly |
Changeover |
$ 180,000 |
Changeover hours |
1,000 |
|
Rework |
61,750 |
Rework orders |
50 |
|
Testing |
300,000 |
No. of tests |
750 |
|
Materials handling |
380,000 |
No. of parts |
50,000 |
|
Engineering support |
130,000 |
Engineering hours |
2,000 |
|
|
$1,051,750 |
|
|
Other overhead activities, their costs, and drivers are listed
below.
| Activity |
Cost |
Activity Driver |
Quantity |
| Purchasing |
$ 135,000 |
Purchase requisitions |
500 |
| Receiving |
274,000 |
Receiving orders |
2,000 |
| Paying suppliers |
225,000 |
No. of invoices |
1,000 |
| Providing space and utilities |
100,000 |
Machine hours |
10,000 |
| Total |
$ 734,000 |
|
|
Other production information concerning the two hydraulic
cylinders is also provided:
|
|
|
Cylinder A |
|
Cylinder B |
|
|
| Units produced |
1,500 |
|
3,000 |
| Welding hours |
1,600 |
|
2,400 |
| Machine hours |
3,000 |
|
7,000 |
| Inspections |
500 |
|
500 |
| Moves |
7,200 |
|
4,800 |
|
| Batches |
45 |
|
55 |
|
| Changeover hours |
540 |
|
460 |
|
| Rework orders |
5 |
|
45 |
|
| No. of tests |
500 |
|
250 |
|
| Parts |
40,000 |
|
10,000 |
|
| Engineering hours |
1,500 |
|
500 |
|
| Requisitions |
425 |
|
75 |
|
| Receiving orders |
1,800 |
|
200 |
|
| Invoices |
650 |
|
350 |
|
Required:
1. Using a plantwide rate based on machine
hours, calculate the total overhead cost assigned to each product
and the unit overhead cost. If required, round your unit overhead
cost answers to the nearest cent.
|
Total Overhead Cost |
Unit Overhead Cost |
| Cylinder A |
$ |
$ |
| Cylinder B |
$ |
$ |
2. Using activity rates, calculate the total
overhead cost assigned to each product and the unit overhead cost.
If required, round interim calculations to the nearest cent, and
final answers to the nearest dollar.
|
Total Overhead Cost |
Unit Overhead Cost |
| Cylinder A |
$ |
$ |
| Cylinder B |
$ |
$ |
3. Calculate the global consumption ratios.
Round your answers to two decimal places.
|
Global Consumption Ratios |
| Cylinder A |
|
| Cylinder B |
|
4. Calculate the consumption ratios for welding
and materials handling (Assembly). Round your answers to two
decimal places.
|
Cylinder A |
Cylinder B |
| Welding |
|
|
| Materials handling |
|
|
5. Calculate the consumption ratios for
inspection and engineering. Round your answers to two decimal
places.
|
Cylinder A |
Cylinder B |
| Inspection |
|
|
| Engineering |
|
|
