Table 1 ABC activities, cost drivers, and cost pools Activity Activity cost driver Total activity cost pool Est cost driver usage Production Machine hours $1,580,000 600,000 Materials Lbs of materials $620,000 230,000 Correction DLH (trimming) $755,000 35,000 Inspection of inspections $290,000 2,000 Table 2 Job proposal (resources) Direct materials $7,400 Direct labor (total cost) $11,600 Direct labor hours (in production) 250 Direct labor hours (in correction) 575 Lbs of material 3,500 Number of setups 6 Number of colors used 4 Number of inspections 15 Number of machine hours 1000 1 Provide a total cost estimate using the current traditional costing system 2 Provide a total cost estimate using the activity based costing system proposed by the ABC implementation team 3 Explain to Jeri which cost estimate should be used to develop her bid, and why 4 Use activity based management to respond to Jeris question about process inefficiencies driving up costs 5 Evaluate the ABC system as it currently stands Explain what specific change(s) you recommend the ABC implementation team make, and how that could affect your cost estimates

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Question: Table 1: ABC activities, cost drivers, and cost pools Activity Activity cost driver Total activity cost pool Est. cost driver usage Production Machine hours $1,580,000

Table 1: ABC activities, cost drivers, and cost pools

Activity	Activity cost driver	Total activity cost pool	Est. cost driver usage
Production	Machine hours	$1,580,000	600,000
Materials	Lbs of materials	$620,000	230,000
Correction	DLH (trimming)	$755,000	35,000
Inspection	# of inspections	$290,000	2,000

Table 2: Job proposal (resources)

Direct materials	$7,400
Direct labor (total cost)	$11,600
Direct labor hours (in production)	250
Direct labor hours (in correction)	575
Lbs of material	3,500
Number of setups	6
Number of colors used	4
Number of inspections	15
Number of machine-hours	1000

1. Provide a total cost estimate using the current traditional costing system.

2. Provide a total cost estimate using the activity based costing system proposed by the ABC implementation team.

3. Explain to Jeri which cost estimate should be used to develop her bid, and why.

4. Use activity based management to respond to Jeris question about process inefficiencies driving up costs.

5. Evaluate the ABC system as it currently stands. Explain what specific change(s) you recommend the ABC implementation team make, and how that could affect your cost estimates.

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