Patterson Company produces wafers for integrated circuits. Data for the most recent year are provided:

Required:
1. Using the five most expensive activities, calculate the overhead cost assigned to each product. Assume that the costs of the other activities are assigned in proportion to the cost of the five activities.
2. Calculate the error relative to the fully specified ABC product cost and comment on the outcome.
3. What if activities 1, 2,5, and 8 each had a cost of $650,000 and the remaining activities had a cost of $50,000? Calculate the cost assigned to Wafer A bya f ully specified ABC system and then by an approximately relevant ABC approach. Comment on the implications for the approximately relevant approach.LO1

Transcribed Image Text:

Expected Consumption Ratios Activity Inserting and sorting process activities: 1. Developing test programs 2. Making probe cards Driver Wafer A Wafer B Engineering hours 0.25 0.75 $ 50,000 60,000 Development hours 0.10 0.90 3. Testing products 600,000 Test hours 0.60 0.40 4. Setting up batches 135,000 Number of batches 0.55 0.45 5. Engineering design 90,000 Number of change orders 0.15 0.85 6. Handling wafer lots 300,000 Number of moves 0.45 0.55 7. Inserting dies 700,000 Number of dies 0.70 0.30 Procurement process activities: 8. Purchasing materials 400,000 Number of purchase orders 0.20 0.80 9. Unloading materials 60,000 Number of receiving orders - 0.35 0.65 10. Inspecting materials 75,000 Inspection hours 0.65 0.35 11. Moving materials 500,000 Distance moved 0.50 0.50 12. Paying suppliers 30,000 Number of invoices 0.30 0.70 Total activity cost $3,000,000 Unit-level (plantwide) cost assignment $2,100,000 $900,000 Activity cost assignment $1,500,000 $1,500,000