Required:

Determine the total overhead assigned to each product using the four activity drivers.

N

Determine the total overhead assigned to each model using the two most expensive activi-

the two relatively in

ties. The costs of the two relatively inexpensive activities are allocated to the two expensive

activities in proportion to their costs.

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.

1. Activity Rates III Total Cost Activity Capacity $126,000 + 150 $18,000 900 $126,000 10,500 $30,000 1,250 + Setting up equipment Ordering materials Machining Receiving Activity Rate $840 per setup $20 $12 per machine hour $24 per receiving hour per order Activity Usage Model X Model Y 5 7 3 3 0 1 2 3 4 35 16 17 18 19 20 21 22 23 24 25 Overhead Cost Assignment Activity Rate X Setting up equipment Model X $840 x Model Y $840 $ 84,000 100 50 $ 42.000 x Ordering materials Model X Model Y 6.000 $20 X $20 X 300 600 12.000 Machining Model X $12 6.000 72.000 72,000 512 X $12 x 6,000 4.500 54,000 4 Machining 5 Model X 6 Model Y 7 B Receiving 2 Model X Model Y 1 Total OH assigned 2 3 2. New Cost Pools 9,000 $24X $24 X 375 875 21,000 $ 129,000 $ 171,000 + Total Cost $126,000 $126,000 Proration of Least Expensive Activities Wong Enter as a formula New Cost Pool $126.012 + Setting up equipment Machining + New Activity Rates Total Cost Activity Capacity Setting up equipment Wong $126.000 Machining Activity Rate per setup per hour Overhead Cost Assignment A B D E F G H M 1 5 5 Overhead Cost Assignment Model X Model Y 7 Setting up equipment: X X 3 Machining X Total Model X Model Y 3. Percentage Error 3 e Overhead cost assignment from (1) Overhead cost assignment from (2) 1 Difference 2 + Overhead cost assignment from (1) 3 Percentage error