Exercise 4.22 Approximately Relevant ABC Objective 4 Silven Company has identified the following overhead activities, costs, and activity drivers for the coming year: + Activity Setting up equipment Ordering materials Machining Receiving Expected Cost $126,000 18,000 126,000 30,000 Activity Driver Number of setups Number of orders Machine hours Receiving hours Activity Capacity 150 900 10,500 1,250 Silven produces two models of cell phones with the following expected activity demands: Model X Model Y Units completed Number of setups Number of orders Machine hours Receiving hours 5,000 100 300 6,000 10,000 50 600 4,500 875 375 Required: 1. Determine the total overhead assigned to each product using the four activity drivers. Answer Check Figures: Total OH assigned: Model X = $171,000, Model Y = $129,000 2. Determine the total overhead assigned to each model using the two most expensive activities. The costs of the two relatively inexpensive activities are allocated to the two expensive activities in proportion to their costs. Answer Check Figures: Total OH assigned: Model X = $185,740, Model Y = $114,305 3. Using ABC as the benchmark, calculate the percentage error and comment on the accuracy of the reduced system. Explain why this approach may be desirable. Exercise 4.22 Approximately Relevant ABC Objective 4 Silven Company has identified the following overhead activities, costs, and activity drivers for the coming year: + Activity Setting up equipment Ordering materials Machining Receiving Expected Cost $126,000 18,000 126,000 30,000 Activity Driver Number of setups Number of orders Machine hours Receiving hours Activity Capacity 150 900 10,500 1,250 Silven produces two models of cell phones with the following expected activity demands: Model X Model Y Units completed Number of setups Number of orders Machine hours Receiving hours 5,000 100 300 6,000 10,000 50 600 4,500 875 375 Required: 1. Determine the total overhead assigned to each product using the four activity drivers. Answer Check Figures: Total OH assigned: Model X = $171,000, Model Y = $129,000 2. Determine the total overhead assigned to each model using the two most expensive activities. The costs of the two relatively inexpensive activities are allocated to the two expensive activities in proportion to their costs. Answer Check Figures: Total OH assigned: Model X = $185,740, Model Y = $114,305 3. Using ABC as the benchmark, calculate the percentage error and comment on the accuracy of the reduced system. Explain why this approach may be desirable