Bob Randall, cost accounting manager for Hemple Products, was asked to determine the costs of the activities

Question:

Bob Randall, cost accounting manager for Hemple Products, was asked to determine the costs of the activities performed within the company€™s Manufacturing Engineering Department. The department has the following activities: creating bills of materials (BOMs), studying manufac- turing capabilities, improving manufacturing processes, training employees, and designing tools. The resource costs (from the general ledger) and the times to perform one unit of each activity are provided below.

Total machine and labor hours (at practical capacity):
Machine hours ..... 2,000
Engineering hours ..... 18,000
Total hours ..... 20,000
The activity, designing tools, uses the number of tools designed as the activity driver. Using a traditional approach, the cost of the designing tools activity was determined to be $179,000 (see Exercise 4.18) with an expected activity output of 1,000 for the coming year. During the first week of the year, two jobs (Job 150 and Job 151) had a demand for 10 and 20 new tools, respectively.
Required:
1. Calculate the capacity cost rate for the Manufacturing Engineering Department.
2. Using the capacity cost rate, determine the activity rates for each activity.
3. Calculate the cost of designing tools that would be assigned to each job using the TDABC-derived activity rate and then repeat using the traditional ABC rate. What might be the cause or causes that would explain the differences in the two approaches?
4. Now suppose that time for creating BOMs is 0.50 for a standard product but that creating a BOM for a custom product adds an additional 0.3 hour. Express the time equation for this added complexity and then calculate the activity rate for the activity of creating a BOM for custom products.