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.

$____