FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Bob Randall, cost
| Resource Cost | Activities | Unit Time | Driver | |
| Salaries | $500,000 | Creating BOMs | 0.5 hr. | No. of BOMs |
| Equipment | 100,000 | Designing Tools | 5.4 hr. | No. of tools designs |
| Supplies | 30,000 | Improving processes | 1.0 hr. | Process improvement hrs |
| Total | $630,000 | Training employees | 2.0 hr. | No. of training sessions |
| Studying capabilities | 1.0 hr. | Study hrs. |
Total machine and labor hours (at practical capacity):
Machine hours 2,000
Engineering hours 18,000
Total hours 20,000
The activity, designing tools, uses the number of tools designed as the activity driver. Using a traditional approach, the cost of the designing tools activity was determined to be $179,000 (see Exercise 4.19) with an expected activity output of 1,000 for the coming year. During the first week of the year, two jobs (Job 150 and Job 151) had a demand for 10 and 20 new tools, respectively.
Required:
- Calculate the capacity cost rate for the Manufacturing Engineering Department.
- Using the capacity cost rate, determine the activity rates for each activity.
- Calculate the cost of designing tools that would be assigned to each job using the TDABC-derived activity rate and then repeat using the traditional ABC rate. What might be the cause or cause that would explain the differences in the two approaches?
- Now suppose that time for creating BOMs is 0.50 for a standard product but that creating a BOM for a custom product adds an additional 0.3 hour. Express the time equation for this added complexity and then calculate the activity rate for the activity of creating a BOM for custom products.
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