Refer to the data given in Problem 4.34 and suppose that the expected activity costs are reported as follows (all other data remain the same):

Other overhead activities:
Activity Cost
Purchasing ........ $ 50,000
Receiving ........ 70,000
Paying suppliers........ 80,000
Providing space and utilities ... 30,000
$230,000
The per unit overhead cost using the 14 activity-based drivers is $1,108 and $779 for Cylinder A and Cylinder B, respectively.
Required:
1. Determine the percentage of total costs represented by the three most expensive activities.
2. 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.
3. Using the costs assigned in Requirement 2, calculate the percentage error using the ABC costs as a benchmark. Comment on the value and advantages of this ABC simplification.

Transcribed Image Text:

Process Activity Welding Machining Inspecting Materials handling Setups Cost $2,000,000 1,000,000 50,000 72,000 400,000 S3,522,000 $28,000 50,000 40,000 60,000 70,000 S 248,000 Cutting and Weldin,g 1 Assembly Changeover Rework Testing Materials handling Engineering support