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 sub-assembly are then assembled in the Assembly Department. The activities, expected costs, and drivers associated with these two manufacturing processes are given below.

Other overhead activities, their costs, and drivers are listed below.

Other production information concerning the two hydraulic cylinders is also provided:

Required:
1. Using a plantwide rate based on machine hours, calculate the total overhead cost assigned to each product and the unit overhead cost.
2. Using activity rates, calculate the total overhead cost assigned to each product and the unit overhead cost. Comment on the accuracy of the plantwide rate.
3. Calculate the global consumption ratios.
4. Calculate the consumption ratios for welding and materials handling (Assembly) and show that two drivers, welding hours and number of parts, can be used to achieve the same ABC product costs calculated in Requirement 2. Explain the value of this simplification.
5. Calculate the consumption ratios for inspection and engineering, and show that the drivers for these two activities also duplicate the ABC product costs calculated in Requirement 2.

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Expected Quantity 4,000 10,000 1,000 12,000 Process Activity Cost Activity Driver Welding Machining Inspecting Materials handling Setups Cutting and Welding S 776,000 Welding hours 450,000 448,250 300,000 240,000 $2,214,250 Machine hours No. of inspections No. of batches No. of setups 100 1,000 50 750 50,000 2,000 Assembly Changeover Rework Testing Materials handling Engineering support S 180,000 Changeover hours 61,750 Rework orders 300,000 No. of tests 380,000 No. of parts 30,000 Engineering hours $1,051,750 Activity Purchasing Receiving Paying suppliers Providing space and utilities Cost Activity Driver $135,000 274,000 225,000 100,000 $734,000 Purchase requisitions Receiving orders No. of invoices Machine hours Quantity 500 2,000 1,000 10,000 Cylinder A 1,500 1,600 3,000 500 7,200 Cylinder E 3,000 2,400 7,000 500 4,800 Units produced Welding hours Machine hours Inspections Moves Batches Changeover hours Rework orders No. of tests Parts Engineering hours Requisitions Receiving orders Invoices 45 540 45 250 10,000 500 500 40,000 1,500 425 1,800 650 200 350