E4-30B Compute activity cost allocation rates (Learning Objective 2)

TECH manufactures electronic appliance products based on customer orders and uses an activity-based costing system. Wages and salaries total $180,000, and other overhead costs are $200,000. The manager also provided the following budgeted data for the month:

Activity Allocation Base Expected Activity Direct labor related................ Number of direct labor hours 12,000 direct labor hours Order processing................... Number of customer orders 140 orders Machine setup........................ Number of setups 220 setups Customer support.................. Number of customer 80 customers Finishing................................. Number machine hours 10,000 machine hours The distribution of resource consumption across activities is as follows:

Direct Labor Related Order Processing Machine Setup Customer Support Finishing Total Wages and salaries......................... 35% 20% 15% 10% 20% 100%

Other overhead costs..................... 10% 10% 30% 10% 40% 100%

TECH is considering introducing an online ordering method for its customers.

The manual ordering system will still remain, and it is expected that half of the number of manual orders will switch to online ordering. Moreover, the company also plans to purchase a new machine in order to enhance production efficiency. This will reduce the number and cost of direct labor hours, but increases overhead costs. The new amount spent on wages and salaries is expected to be $140,000, and other overhead costs will rise to $220,000. The expected new activities are as follows:

Activity Allocation Base Expected Activity Direct labor related................................ Number of direct labor hours 8,000 direct labor hours Manual order processing....................... Number of manual orders 70 orders Online order processing......................... Number of online order 70 orders Machine setup........................................ Number of setups 250 setups Customer support.................................. Number of customer 80 customers Finishing................................................. Number machine hours 14,000 machine hours Activity Direct Labor Related Manual Order Processing Online Order Processing Machine Setup Customer Support Finishing Total Wages and salaries................................. 20% 10% 10% 20% 10% 30% 100%

Other overhead costs............................. 5% 5% 5% 30% 10% 45% 100%

Requirements 1. Compute the activity rates to the nearest cent for each of the activity cost pools before TECH introduces online ordering and purchases new machinery.

2. Compute the new activity rates to the nearest cent if TECH implements the online ordering and purchases the new machinery.