Reducir, Inc., produces two different types of hydraulic cylinders. Reducir produces a major subassembly for the cylinders in the Cutting and Welding Department. Other parts and the subassembly are then assembled in the Assembly Department. The activities, expected costs, and drivers associated with these two manufacturing processes are given below.

Required:
1. Using a plantwide rate based on machine hours, calculate the total overhead cost assigned to each product and the unit overhead cost.
2. Using activity rates, calculate the total overhead cost assigned to each product and the unit overhead cost. Comment on the accuracy of the plantwide rate.
3. Calculate the global consumption ratios.
4. Calculate the consumption ratios for welding and materials handling (Assembly)
and show that two drivers, welding hours and number of parts, can be used to achieve the same ABC product costs calculated in Requirement 2. Explain the value of this simplification.
5. Calculate the consumption ratios for inspection and engineering and show that the drivers for these two activities also duplicate the ABC product costs calculated in Requirement 2.LO1 

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Process Activity Cutting and Welding Welding Machining Inspecting Materials handling Setups Assembly Changeover Rework Expected Cost Activity Driver Quantity $ 776,000 Welding hours 4,000 450,000 Machine hours 10,000 448,250 No. of inspections 1,000 300,000 No. of batches 12,000 240,000 No. of setups 100 $2,214,250 $ 180,000 Changeover hours 1,000 61,750 Rework orders 50 300,000 No. of tests 750 380,000 No. of parts 50,000 Engineering hours 2,000 Testing Materials handling Engineering support 130,000 $1,051,750 Note: In the assembly process, the materials handling activity is a function of product characteristics rather than batch activity. Other overhead activities, their costs, and drivers are listed below. Activity Cost Activity Driver Quantity Purchasing $135,000 Purchase requisitions 500 Receiving 274,000 Receiving orders 2,000 Paying suppliers 225,000 No. of invoices 1,000 Providing space and utilities 100,000 Machine hours 10,000 $734,000