Question

Equally Accurate Reduced ABC System Silven Company has identified the following overhead activities, costs, and activity drivers for the coming year:

Activity Expected Cost Activity Driver Activity Capacity

Setting up equipment $126,000 Number of setups 150

Ordering materials 18,000 Number of orders 900

Machining 126,000 Machine hours 10,500

Receiving 30,000 Receiving hours 1,250

Silven produces two models of cell phones with the following expected activity demands:

Model X Model Y

Units completed 5,000 10,000

Number of setups 100 50

Number of orders 300 600

Machine hours 6,000 4,500

Receiving hours 375 875

Required: 1. Calculate the global consumption ratios for the two products. Round your answers to two decimal places.

Global consumption ratios: Model X 0.57 Model Y 0.43 (Answers)

2. Using the activity consumption ratios for number of orders and number of setups, show that the same cost assignment can be achieved using these two drivers as that of the complete, four-driver ABC system. In your calculations round amounts to two decimal places. Round your final answers to the nearest dollar.

Model X Model Y

Setting up equipment $ $

Ordering materials

Total Overhead assigned $ $

Answer 1

		Budgted amount	Activity base	Amount per activity
	Setting up equipment	126000	150	840.00
	Ordering material	18000	900	20.00
	Machining	126000	10500	12.00
	Receiving	30000	1250	24.00
		300000
		Product X	Per unit	Total cost
	Setting up equipment	100	840.00	84000
	Ordering material	300	20.00	6000
	Machining	6000	12.00	72000
	Receiving	375	24.00	9000
	Total cost			171000
		Product Y	Per unit	Total cost
	Setting up equipment	50	840.00	42000
	Ordering material	600	20.00	12000
	Machining	4500	12.00	54000
	Receiving	875	24.00	21000
	Total cost			129000
	Global consumption ratio	Product X	Product Y
		0.57	0.43
		(171000/300000)	(129000/300000)
2		Product X	Product Y
	Setting up equipment	71820	54180	126000
		(126000*.57)	(126000*.43)
	Ordering material	10260	7740	18000
		(18000*.57)	(18000*.43)
	Total overheads assigned	82080	61920