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#3 Clayton Park Chemicals Ltd. manufactures industrial cleaners. The two major chemicals that it produces are MLP and XYZ. The company uses an activity-based
#3 Clayton Park Chemicals Ltd. manufactures industrial cleaners. The two major chemicals that it produces are MLP and XYZ. The company uses an activity-based costing system with three cost pools: Process line costs of $1,248,000 consist of all costs required to maintain and run the equipment used to produce the chemicals. Clayton Park uses total machine hours for all equipment on the line as the cost driver. Total machine hours for the year were 12,000. Each production run for the company required between two and four hours to set up the process flow. The total cost for the year was $1,092,000, and total setup hours were set at 800. A research and development team of chemical engineers was on staff to ensure that the process was streamlined and within government guidelines. This cost pool consisted of employee salaries, as well as equipment and testing laboratory costs. Total cost for the year was $980,000 and was applied to product lines based on 2,500 hours of lab time. The following activities occurred for the year for each product: MLP Total litres produced 100,000 XYZ 75,000 Litres per batch 1,000 500 Process machine hours per batch 36 56 Setup hours per batch 2 4 Research and development lab time 1,500 1,000 Total direct costs were $450,000 for MLP and $600,000 for XYZ.
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