Simplifying the ABC System: Approximately Relevant ABC Systems Patterson Company produces wafers for integrated circuits. Data for the most recent year are provided: Calculated using number of dies as the single unit-level driver. Calculated by multiplying the consumption ratio of each product by the cost of each activity. Required: Expected Consumption Ratios Wafer A Wafer B Activity Driver Inserting and sorting process activities: 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. $ 45,000 1. Developing test programs 2. Making probe cards Engineering hours Development hours Test hours 0.75 0.90 65,000 Activity Budgeted Activity Cost 3. Testing products 700,000 0.35 0.65 0.55 Number of batches 0.45 140,000 95,000 200,000 Testing products Handling wafer lots Inserting dies Purchasing materials 4. Setting up batches 5. Engineering design 6. Handling wafer lots 7. Inserting dies Number of change orders 0.85 Number of moves 0.15 0.40 0.75 0.60 0.25 1,100,000 Number of dies Moving materials Procurement process activities: Total activity cost 8. Purchasing materials Number of purchase orders 0.15 0.85 Approx. ABC Cost 9. Unloading materials Number of receiving orders 0.35 0.65 Wafer A Inspection hours 500,000 64,000 84,000 400,000 39,000 0.40 10. 11. 12. Wafer B Inspecting materials Moving materials Paying suppliers Distance moved 0.60 0.55 0.35 0.45 Number of invoices 0.65 Total activity cost $ 3,432,000 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. Unit-level (plantwide) cost assignment $2,574,000 $858,000 Relative error Activity cost assignment $1,850,450 $1,581,550 Wafer A Wafer B 3. What if activities 1, 2, 5, and 8 each had a cost of $705,000 and the remaining activities had a cost of $76,500 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 Cost by an approximately relevant ABC approach