1. 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	$	49,000		Engineering hours			0.25				0.75
   2.		Making probe cards		68,000		Development hours			0.15				0.85
   3.		Testing products		500,000		Test hours			0.60				0.40
   4.		Setting up batches		145,000		Number of batches			0.60				0.40
   5.		Engineering design		95,000		Number of change orders			0.20				0.80
   6.		Handling wafer lots		300,000		Number of moves			0.40				0.60
   7.		Inserting dies		800,000		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		61,000		Number of receiving orders			0.35				0.65
   10.		Inspecting materials		77,000		Inspection hours			0.70				0.30
   11.		Moving materials		400,000		Distance moved			0.55				0.45
   12.		Paying suppliers		34,000		Number of invoices			0.30				0.70
   		Total activity cost	$	2,929,000

   Unit-level (plantwide) cost assignmenta		$2,196,750		$732,250
   Activity cost assignmentb		$1,513,900		$1,415,100

   ^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 9 %
   Wafer B	fill in the blank 10 %

   3. What if activities 1, 2, 5, and 8 each had a cost of $612,000 and the remaining activities had a cost of $60,125 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

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. $ 49,000 Engineering hours 0.25 0.75 Developing test programs Making probe cards 2. 68,000 Development hours 0.15 0.85 3. 500 Test hours 0.60 0.40 Testing products Setting up batches 4. 145,000 0.60 0.40 5. 95,000 0.20 0.80 Engineering design Handling wafer lots Number of batches Number of change orders Number of moves Number of dies 6. 300,000 0.40 0.60 7. Inserting dies 800,000 0.75 0.25 Procurement process activities: 8. Purchasing materials 400,000 0.15 0.85 Number of purchase orders Number of receiving orders 9. Unloading materials 61,000 0.35 0.65 10. Inspecting materials 77,000 Inspection hours 0.70 0.30 11. 400,000 0.55 0.45 Moving materials Paying suppliers Distance moved Number of invoices 12. 34,000 0.30 0.70 Total activity cost $ 2,929,000 $2,196,750 $732,250 Unit-level (plantwide) cost assignment Activity cost assignment $1,513,900 $1,415,100 - 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. 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 Handling wafer lots $ Inserting dies $ Purchasing materials $ Moving materials Total activity cost $ Approx. ABC Cost Wafer A Wafer B 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 % Wafer B % 3. What if activities 1, 2, 5, and 8 each had a cost of $612,000 and the remaining activities had a cost of $60,125 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