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 as follows:

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 as follows:

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.

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Process Activity Cost Activity Driver Expected Quantity Cutting and welding Welding $ 776,000 Welding hours 4,000 Machining Inspecting 450,000 Machine hours 10,000 448,250 No. of inspections 1,000 Materials handling Setups 300,000 No. of batches 12,000 240,000 No. of setups 100 $2,214,250 Assembly Changeover Rework Testing $ 180,000 Changeover hours 1,000 61,750 Rework orders 50 300,000 No. of tests 750 Materials handling Engineering support 380,000 No. of parts 50,000 130,000 Engineering hours 2,000 $1,051,750