Simplifying the ABC System: Approximately Relevant ABC Systems

Patterson Company produces wafers for integrated circuits. Data for the most recent year are provided:

							Expected Consumption Ratios
Activity						Driver		Wafer A				Wafer B
Inserting and sorting process activities:
1.		Developing test programs	$	48,000		Engineering hours			0.25				0.75
2.		Making probe cards		64,000		Development hours			0.10				0.90
3.		Testing products		500,000		Test hours			0.60				0.40
4.		Setting up batches		130,000		Number of batches			0.60				0.40
5.		Engineering design		90,000		Number of change orders			0.15				0.85
6.		Handling wafer lots		300,000		Number of moves			0.45				0.55
7.		Inserting dies		1,100,000		Number of dies			0.75				0.25
Procurement process activities:
8.		Purchasing materials		400,000		Number of purchase orders			0.15				0.85
9.		Unloading materials		68,000		Number of receiving orders			0.30				0.70
10.		Inspecting materials		75,000		Inspection hours			0.60				0.40
11.		Moving materials		100,000		Distance moved			0.55				0.45
12.		Paying suppliers		37,000		Number of invoices			0.35				0.65
		Total activity cost	$	2,912,000

Unit-level (plantwide) cost assignmenta		$2,184,000		$728,000
Activity cost assignmentb		$1,563,250		$1,348,750

^a Calculated using number of dies as the single unit-level driver. ^b Calculated by multiplying the consumption ratio of each product by the cost of each activity.

Required:

1. Using the five most expensive activities, calculate the overhead cost assigned to each product. Assume that the costs of the other activities are assigned in proportion to the cost of the five activities. If required, round your answers to the nearest dollar.

Activity	Budgeted Activity Cost
Testing products	$fill in the blank 1
Handling wafer lots	$fill in the blank 2
Inserting dies	$fill in the blank 3
Purchasing materials	$fill in the blank 4
Moving materials	$fill in the blank 5
Total activity cost	$fill in the blank 6

Approx. ABC Cost
Wafer A	$fill in the blank 7
Wafer B	$fill in the blank 8

2. Calculate the error relative to the fully specified ABC product cost. Round your calculation to three decimal places and the percentage answer to one decimal place.

	Relative error
Wafer A	fill in the blank %
Wafer B	fill in the blank %

3. What if activities 1, 2, 5, and 8 each had a cost of $602,000 and the remaining activities had a cost of $63,000 each? Calculate the cost assigned to Wafer A by a fully specified ABC system and then by an approximately relevant ABC approach.

Cost by a fully specified ABC system	$fill in the blank 11
Cost by an approximately relevant ABC approach	$fill in the blank 12