=+14-44 KKK Activity-based costing, activity-based management (continuation of 14-43) OBJECTIVE 9 In addition to their standard deodorant, Extreme Sensations has developed a revolutionary product that is highly effective. It is specially designed for mine workers in North Queensland and Western Australia where temperatures often exceed 40 degrees. One application of the new deodorant is enough to keep the miners smelling sweetly all day long. Unfortunately, the process requires much more of the highly toxic chemical. The activities involved in managing this toxic chemical were described in Question 14-43.

Extreme Sensations is also concerned about allocating the costs of those environmental management activities to the two products that utilise the toxic chemical, Seabreeze and Rough Diamond. The total cost of the environmental management activities in 2009 was

$25600 and in 2014 was $29750. These environmental management costs have not previously been included in manufacturing overhead; however, an analysis of those costs suggests that they can be allocated to the two products based on the quantity of the toxic chemical used in production. Other information for the two products is as follows:

1 2

3 4

5 6

7 8

A B C D E Seabreeze Units produced and sold Selling price Direct materials (per unit)

Direct labour (per unit)

Manufacturing overhead (per unit)

Toxic chemical used in production

(in grams per unit)

20 000

$3.85

$1.27

$0.13

$0.63 0.003 Rough Diamond Seabreeze Rough Diamond 5 500

$7.65

$1.35

$0.13

$0.63 0.025 55 000

$4.15

$1.27

$0.13

$0.63 0.003 16 500

$7.65

$1.35

$0.13

$0.63 0.025 2009 2014 Required 1 Calculate the environmental cost per gram of the toxic chemical in 2009 and 2014.