Question

Required information [The following information applies to the questions displayed below.] OFC Company of Kansas City prints business forms and other specialty paper products, such as writing paper, envelopes, note cards, and greeting cards. Its Business Services division offers inventory management services and desktop delivery on request. The division uses an activity-based costing (ABC) system. The budgeted usage of each activity cost driver and cost-driver rates for January 2019 for the Business Services division are:

Activity	Cost Driver	Budgeted Activity			Cost-Driver Rate
Storage	Cartons in inventory		550,000		$	0.5120	/carton/month
Requisition handling	Requisitions		60,000			12.50
Pick packing	Lines		875,000			1.70
Data entry	Lines		875,000			0.80
	Requisitions		45,000			1.26
Desktop delivery	Per delivery		19,500			44.00

For the month, the division expects to make 11,400 deliveries to deliver 1,140,000 cartons to customers.

OFC Company has decided to implement a kaizen (continuous-improvement) program to enhance operational efficiency. After a careful study, management and employees agree that the firm will be able to reduce cost rates for batch-level activities by 2% and unit-level activities (other than Storage) by 1% per month during the first year of the program starting February 2019. The firm has decided to delay the implementation of the program for customer-sustaining and facility-level activities until 2020. The firm expects the amount of cost-driver usage in each of the next two months to be the same as those in January.

Required:

1. Identify unit-level and batch-level activities.

2. What are the total budgeted costs for each activity and for the division as a whole in February and March?

1

	Storage Pick packing Data entry—Lines Requisition handling Data entry—Requisitions Desktop delivery

2

Budgeted Costs Activity February March Storage Requisition handling Pick packing Data entry—Lines Data entry—Requisitions Desktop delivery Divisional totals

Answer 1

Storage Unit-level activities Pick packing Batch-level activities Data entry—Lines Batch-level activities Requisition handling Batch-level activities Data entry—Requisitions Batch-level activities Desktop delivery Unit-level activities

2.
Activity	Cost driver	Budgeted Activity	Cost driver rate	Budgeted Cost-Jan19	Budgeted Cost-Feb19	Budgeted Cost Mar19
Storage	Cartons in inventory	550,000	$               0.5120	$             281,600	$     281,600	$     281,600
Requisitions handling	Requisitions	60,000	$ 12.50	$ 750,000	$ 735,000	$ 720,300
Pick Packing	Lines	875,000	$                    1.70	$         1,487,500	$ 1,457,750	$ 1,428,595
Data Entry	Lines	875,000	$                    0.80	$ 700,000	$ 686,000	$ 672,280
Data Entry requisitions	Requisitions	45,000	$                    1.26	$ 56,700	$ 55,566	$ 54,454.68
Desktop Delivery	Per Delivery	19,500	$ 44.00	$ 858,000	$ 849,420	$ 840,925.8
Total				$         4,133,800	$ 4,065,336	$ 3,998,155.48