Consider one of L.A. Darling’s manufacturing facilities. Suppose this facility assembles parts for displays to be sold to Wal-Mart, Kmart, and Walgreens. There are three departments assembly, power, and maintenance. The assembly department uses an ABC system. The general cost of occupancy is allocated to the maintenance department and the assembly department based on the space occupied. Power department costs are allocated based on megawatt hours used. The assembly process produces three different types of displays with diverse demands on various activities and resources.

Display type X consists of simple parts that are produced in high volume. Display type Y has parts that are of medium volume and complexity. Display type Z consists of complex parts that are produced in small lots.

Management implemented ABC in this facility using the three-step procedure outlined on pages 495 – 497. The first steps have been completed, and the results are depicted in the process map shown in Exhibit 12-21.

1. Refer to Exhibit 12-1 on page 482. For each type of cost assignment listed in Exhibit 12-1, give an example from L.A. Darling. If no example exists, note as such.

2. What allocation method for service department costs does this facility use? Explain.

3. Calculate the allocations of service department and general costs to the assembly department activities.

4. Calculate the activity-based cost of each display type.