Refer to the data given in Problem 4-20 and suppose that the expected activity costs are reported as follows (all other data remain the same):

The per-unit overhead costs using the 14 activity-based drivers are $1,108 and $779 for Cylinder A and Cylinder B, respectively.
Required:
1. Determine the percentage of total costs represented by the three most expensive activities.
2. Allocate the costs of all other activities to the three activities identified in Requirement 1. Allocate the other activity costs to the three activities in proportion to their individual activity costs. Now assign these total costs to the products using the drivers of the three chosen activities.
3. Using the costs assigned in Requirement 1, calculate the percentage error using the ABC costs as a benchmark. Comment on the value and advantages of this ABC simplification.

Transcribed Image Text:

Process Activity Cost Cutting and welding Welding $2,000,000 Machining 1,000,000 Inspecting 50,000 Materials handling 72,000 Setups 400,000 Assembly Changeover Rework Testing Materials handling Engineering support Other overhead activities: Activity Purchasing Receiving Paying suppliers Providing space and utilities $3,522,000 $ 28,000 50,000 40,000 60,000 70,000 $ 248,000 Cost $ 50,000 70,000 80,000 30,000 $230,000