Question

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

Answer 1