Question: Simplifying the ABC System: DBC Electan Company produces two types of printers. The company uses ABC, and all activity drivers are duration drivers. Electan Company
Simplifying the ABC System: DBC
Electan Company produces two types of printers. The company uses ABC, and all activity drivers are duration drivers. Electan Company is considering using DBC and has gathered the following data to help with its decision.
A. Activities with duration drivers:
| Activities | |||||
| Products | Changeover | Assembly | Testing | Rework | Total Hours |
| Printer A | 1,000 | 12,000 | 8,000 | 8,000 | 25,000 |
| Printer B | 4,000 | 8,000 | 12,000 | 12,000 | 25,000 |
| Total hours | 5,000 | 20,000 | 20,000 | 20,000 | 50,000 |
B. Activities with consumption ratios and costs:
| Activities | |||||
| Products | Changeover | Assembly | Testing | Rework | Cost Assignment |
| Printer A | 0.20 | 0.60 | 0.40 | 0.80 | $155,000 |
| Printer B | 0.80 | 0.40 | 0.60 | 0.20 | $155,000 |
| Activity costs | $75,000 | $120,000 | $60,000 | $55,000 | $310,000 |
C. Products with cycle time and practical capacity:
| Products | Cycle Time | Practical Capacity |
| Printer A | 2.5 hours | 10,000 units |
| Printer B | 1.25 hours | 20,000 units |
Required:
1. Calculate the total time for all primary activities. hours
2. Calculate the overhead rate that DBC uses to assign costs.
| $ per labor hour |
3. Use the overhead rate calculated in Requirement 2 to calculate the overhead cost per unit for each product.
| Printer A | $ |
| Printer B | $ |
Calculate the total overhead assigned to each product.
| Printer A | $ |
| Printer B | $ |
4. What if the units actually produced were 10,000 for Printer A and 18,000 for Printer B. Using DBC, calculate the cost of unused capacity.
$
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