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 as follows:

Other overhead activities, their costs, and drivers are as follows:

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

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. Determine the percentage of total costs represented by the three most expensive activities.
4. Allocate the costs of all other activities to the three activities identified in Requirement 1. Allocate the other activity costs to the three activities in proportion to their individual activity costs. Now assign these total costs to the products using the drivers of the three chosen activities.
5. Using the costs assigned in Requirement 1, calculate the percentage error using the ABC costs as a benchmark. Comment on the value and advantages of this ABCsimplification.

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Expected Process Activity Cost Activity Dr Quantity Cutting and Welding welding $2,000,000 Welding hours 1,000,000 Machine hours 4,000 10,000 50,000 No. of inspections 1,000 12,000 100 Machining Materials handling 72,000 400,000 S3,522,000 No. of moves No. of setups Assembly Changeover S 28,000 Changeover hours 1,000 50,000 Rork orders 40,000 No. of tests 60,000 No. of parts 70,000 Engineering hours Materials handling Engincering support00 50,000 2,000 5 $248,000 Expected Quantity 500 2,000 1,000 10,000 Activity Activity Driver Purchase requisitions Cost Purchasing Receiving Paying suppliers Providing space and utilitics S 50,000 70,000 Recig orders 80,000 No. of invoices 30,000 Machine hours $230,000 Clinder A Cylinder B 1,500 1,600 3,000 500 7,200 Units produced Welding hours Machine hours Inspections Moves Setups Changeover hours Rework orders Tests Parts Engineering hours Requisitions Receiving orders Invoices 3,000 2,400 7,000 500 4,800 45 460 45 250 10,000 500 75 200 350 540 500 40,000 1,500 425 1.800 650