ABC activities, cost drivers, and cost pools

 

Activity Activity cost driver Estimated activity usage Estimated cost Production Machine hours 600,000 $ 1,650,000 Materials Lbs of etching solutions 175,050 525,150 Cleansing DLH (cleansing) 85,000 275,000 Inspection # of inspections 3,500 122,600

Table 2: Job proposal (resources) Direct materials cost $ 8,750 Direct labor cost $ 14,600

Direct labor hours (in production) 1,175 Direct labor hours (in cleansing) 780 Lbs of material 6,850 Number of setups 15 Types of etching solution 6 Number of inspections 275 Number of machine-hours 3,570

Required: Write a 1-2 page memo, as the accounting consultant of Roger Chemometrics, LTD, addressed to Ms. Kate Fischer describing your analysis and the recommendation. Make sure you respond to the following items: a) Using current traditional costing (plantwide) method, estimate the total cost estimate of the proposed job. Ms. Fischer expects to use a total of 125,000 direct labor hours for the upcoming fiscal year. b) Using current ABC method, estimate the total cost estimate of the proposed job. c) Explain to Ms. Fischer which cost estimate should be used to develop her bid, and why. d) Use ABM to address to Ms. Fischer's concern about process inefficiencies driving up costs.